VERSION A
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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 Flexible Premium Variable Life Insurance Policies
(the "Policy" or "Policies"), offered by Phoenix Home Life Mutual Insurance
Company ("Phoenix"). An applicant chooses the amount of Issue Premium desired
and it is then shown in the Policy. Generally, the minimum Issue Premium Phoenix
will accept is 1/6 of the Planned Annual Premium. Phoenix may, in some cases,
accept less than that amount. The amount and payment frequency of planned
premiums are as shown in the Policy. If too much is paid in premium in the early
Policy Years, the Policy could become a modified endowment contract. This would
cause loans and other amounts received under the Policy to be subject to tax
and/or penalties. Currently, Phoenix notifies a Policyowner when a Policy
becomes a modified endowment contract.
Premium payments are allocated to one or more of the Subaccounts of the
Phoenix Home Life Variable Universal Life Account (the "VUL Account") or to the
Guaranteed Interest Account ("GIA"), as specified in the applicant's application
for insurance. The VUL Account is divided into Subaccounts, each of which
invests in a corresponding series of The Phoenix Edge Series Fund, Wanger
Advisors Trust or Templeton Variable Products Series Fund (each the "Fund" or
collectively, the "Funds"). For certain Policyowners, the Issue Premium is first
allocated to the Money Market Subaccount before being allocated according to the
instructions in the application.
There is no guaranteed minimum Policy Value except for that portion of
Policy Value invested in the GIA, which has a 4% minimum interest rate
guarantee. The Policy Value not invested in the GIA will vary to reflect the
investment experience of the Subaccounts of the VUL Account to which premiums
have been allocated. A Policyowner bears the investment risk for all amounts so
allocated. The Policy will remain in effect so long as the Policy Value or Cash
Surrender Value is sufficient to pay certain monthly charges imposed in
connection with the Policy.
The death benefit under the Policy equals the Policy's face amount on the
date of the Insured's death or, if greater, the Policy Value on the date of
death increased by the applicable percentage set forth in the Policy. Other
death benefit options also are available.
A Policyowner may cancel the Policy within 10 days (or longer in some
states), after the Policyowner receives it or 10 days after Phoenix mails or
delivers a written notice of withdrawal right to the Policyowner, or within 45
days of completing the application, whichever is latest.
IT MAY NOT BE ADVANTAGEOUS TO PURCHASE A POLICY AS A REPLACEMENT FOR 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 provides information about the Policy that prospective
investors should know before investing and 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 ........................................ 2
SPECIAL TERMS ............................................ 3
SUMMARY .................................................. 4
PERFORMANCE HISTORY....................................... 5
PHOENIX AND THE VUL ACCOUNT .............................. 7
Phoenix ............................................... 7
The VUL Account ....................................... 7
The GIA................................................ 7
THE POLICY ............................................... 7
Introduction .......................................... 7
Eligible Purchasers ................................... 7
Premium Payment ....................................... 8
Allocation of Issue Premium ........................... 8
Right to Cancel Period ................................ 8
Temporary Insurance Coverage .......................... 9
Transfer of Policy Value .............................. 9
Determination of Subaccount Values .................... 9
Death Benefit ......................................... 10
Surrenders ............................................ 11
Policy Loans .......................................... 11
Lapse ................................................. 12
Payment of Premiums During Period of Disability ....... 12
Additional Insurance Options .......................... 12
Additional Rider Benefits ............................. 12
INVESTMENTS OF THE VUL ACCOUNT ........................... 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
Monthly Deduction ..................................... 16
Premium Taxes ......................................... 17
Federal Tax Charge..................................... 17
Mortality and Expense Risk Charge ..................... 17
Investment Management Charge .......................... 17
Other Charges ......................................... 17
GENERAL PROVISIONS ....................................... 19
Postponement of Payments .............................. 19
Payment by Check ...................................... 19
The Contract .......................................... 19
Suicide ............................................... 19
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 ....................................... 20
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 ................................ 22
Qualified Plans ....................................... 22
Diversification Standards ............................. 22
Change of Ownership or Insured or Assignment .......... 22
Other Taxes ........................................... 22
VOTING RIGHTS ............................................ 23
The Funds ............................................. 23
Phoenix ............................................... 23
THE DIRECTORS AND EXECUTIVE OFFICERS OF PHOENIX .......... 23
SAFEKEEPING OF THE VUL ACCOUNT'S ASSETS .................. 24
SALES OF POLICIES ........................................ 24
STATE REGULATION ......................................... 25
REPORTS .................................................. 25
LEGAL PROCEEDINGS ........................................ 25
LEGAL MATTERS ............................................ 25
REGISTRATION STATEMENT ................................... 25
YEAR 2000 ISSUE........................................... 25
FINANCIAL STATEMENTS ..................................... 25
APPENDIX A ............................................... 70
APPENDIX B ............................................... 71
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT BE LAWFULLY MADE. NO DEALER, SALESPERSON OR OTHER PERSON
IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS IN CONNECTION
WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND IF GIVEN
OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON.
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SPECIAL TERMS
- -------------------------------------------------------------------------------
As used in this Prospectus, the following terms have the indicated meanings:
ATTAINED AGE: The age of the Insured on the birthday nearest the most recent
Policy Anniversary.
BENEFICIARY: The person or persons specified by the Policyowner as entitled to
receive the death benefits under a Policy.
CASH SURRENDER VALUE: The Policy Value less any surrender charge that would
apply on the date of surrender and less any Debt.
DEATH BENEFIT GUARANTEE: An additional benefit rider available with the Policy
that guarantees a death benefit equal to the initial face amount or the face
amount as later increased or decreased, provided that Minimum Required Premiums
are paid. See "Additional Rider Benefits."
DEBT: Outstanding loans against a Policy, plus accrued interest.
FUND(S): The Phoenix Edge Series Fund, Wanger Advisors Trust and Templeton
Variable Products Series Fund.
GENERAL ACCOUNT: The general asset account of Phoenix.
GUARANTEED INTEREST ACCOUNT (GIA): An allocation option under which amounts
deposited are guaranteed to earn a fixed rate of interest. Excess interest also
may be credited, in the sole discretion of Phoenix.
IN FORCE: Conditions under which the coverage under a Policy is in effect and
the Insured's life remains insured.
INSURED: The person upon whose life the Policy is issued.
IN WRITING (WRITTEN REQUEST): In a written form satisfactory to Phoenix and
delivered to VPMO.
ISSUE PREMIUM: The premium payment made in connection with the issue of the
Policy.
MINIMUM REQUIRED PREMIUM: The required premium as specified in the Policy.
An increase or decrease in the face amount of the Policy will change the
Minimum Required Premium amount.
MONTHLY CALCULATION DAY: The first Monthly Calculation Day is the same day as
the Policy Date. Subsequent Monthly Calculation Days are the same day of each
month thereafter or, if such day does not fall within a given month, the last
day of that month will be the Monthly Calculation Day.
MULTIPLE LIFE POLICY: A Policy under which the number of Insureds is greater
than one (1) but no more than five (5), and under which the death benefit is
paid upon the death of the first Insured to die.
PAYMENT DATE: The Valuation Date on which a premium payment or loan repayment is
received at Phoenix, unless it is received after the close of the New York Stock
Exchange ("NYSE"), in which case it will be the next Valuation Date.
PHOENIX: Phoenix Home Life Mutual Insurance Company, Hartford, Connecticut.
PLANNED ANNUAL PREMIUM: The premium amount that the Policyowner agrees to pay
each Policy Year. It must be at least equal to the Minimum Required Premium for
the face amount of insurance selected and must be no greater than the maximum
premium allowed for the face amount selected.
POLICY ANNIVERSARY: Each anniversary of the Policy Date.
POLICY DATE: The Policy Date as shown on the Schedule Page of the Policy. It is
the date from which Policy Years and Policy Anniversaries are measured.
POLICY MONTH: The period from one Monthly Calculation Day up to, but not
including, the next Monthly Calculation Day.
POLICYOWNER (OWNER): The Owner of a Policy.
POLICY VALUE: The sum of a Policy's share in the values of each Subaccount of
the VUL Account plus the Policy's share in the values of the GIA.
POLICY YEAR: The first Policy Year is the one-year period from the Policy Date
up to, but not including, the first Policy Anniversary. Each succeeding Policy
Year is the one-year period from the Policy Anniversary up to, but not
including, the next Policy Anniversary.
PROPORTIONATE: Amounts allocated to Subaccounts on a proportionate basis are
allocated by increasing (or decreasing) a Policy's share in the value of the
affected Subaccounts so that such shares maintain the same ratio to each other
before and after the allocation.
SERIES: A separate investment portfolio of the Fund.
SINGLE LIFE POLICY: A Policy that covers the life of one (1) Insured.
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 Operation division of Phoenix that receives
and processes incoming mail for Variable Products Operations.
VUL ACCOUNT: Phoenix Home Life Variable Universal Life Account.
VULA: Variable and Universal Life Administration Division of Phoenix.
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SUMMARY
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1. WHAT IS THE DIFFERENCE BETWEEN THE POLICY AND A CONVENTIONAL FIXED BENEFIT
LIFE INSURANCE POLICY?
Like conventional fixed benefit life insurance, so long as the Policy
remains In Force, the Policy will provide for: (1) the payment of a death
benefit to a Beneficiary upon the Insured's death; (2) the accumulation of cash
value; and (3) surrender rights and Policy loan privileges.
The Policy differs from conventional fixed benefit life insurance by
allowing Policyowners to allocate premiums to one or more Subaccounts of the VUL
Account or to the GIA. Each Subaccount invests exclusively in a designated
portfolio of the Funds. Also, under the Policy, the Policy Value invested in the
VUL Account is not guaranteed and may increase or decrease depending upon the
investment experience of the Subaccounts of the VUL Account. Accordingly, the
Policyowner bears the investment risk of any depreciation in value of the
underlying assets but reaps the benefits of any appreciation in value. See
"Policy Value."
In addition, unlike conventional fixed benefit life insurance, a Policyowner
also has the flexibility to make additional premium payments and to thereby
adjust the Policy Value. However, unlike conventional fixed benefit life
insurance, the Policy does not require a Policyowner to adhere to a fixed
premium payment schedule. Moreover, after the payment of the Issue Premium, the
failure to make additional premium payments will not in itself cause the Policy
to lapse. Conversely, the payment of additional premiums will not guarantee that
the Policy will remain In Force. Generally, lapse will occur when the Cash
Surrender Value is insufficient to pay certain charges deducted on the Monthly
Calculation Day, and a grace period expires without payment of the additional
amount required. See "Lapse."
If a Whole Life Exchange Option Rider is attached to the Policy, the Policy
may be exchanged for a fixed benefit whole life policy. See "Additional Rider
Benefits."
2. IS THERE A GUARANTEED ACCOUNT OPTION?
Yes. A Policyowner may elect to have premium payments allocated to the GIA.
Amounts allocated to the GIA earn a fixed rate of interest and Phoenix also may,
in its sole discretion, credit excess interest. See Appendix A.
3. WHAT IS THE DEATH BENEFIT UNDER THE POLICY?
The Policy provides for the payment of a benefit upon the death of the
Insured. Upon application for a Policy, an applicant designates an Issue
Premium. The Policy indicates the face amount of insurance. The death benefit
will equal the face amount on the date of the Insured's death or, if greater,
the Policy Value on the date of the Insured's death increased by the applicable
percentage set forth in the Policy. If the increased death benefit option is
selected, the death benefit will equal the face amount on the date of the
Insured's death plus the Policy Value or, if greater, the Policy Value on the
date of the Insured's death increased by the applicable percentage set forth in
the Policy. Guaranteed death benefit and living benefits riders also are
available. See "Death Benefit."
4. HOW LONG WILL THE POLICY REMAIN IN FORCE?
The Policy will lapse only when the Cash Surrender Value is insufficient to
pay the monthly deduction (see "Charges and Deductions--Monthly Deductions"),
and a grace period expires without payment of the additional amount required. In
this respect, the Policy differs in two important respects from a conventional
life insurance Policy. First, the failure to pay additional premiums will not
automatically cause the Policy to lapse. Second, the payment of premiums of any
prespecified amount does not guarantee that the Policy will remain In Force. A
rider is available to ensure that premium payments will continue during a period
of disability.
5. WHAT CHARGES ARE THERE IN CONNECTION WITH THE POLICY?
MONTHLY DEDUCTION: A deduction is made each Policy Month from the Policy
Value (excluding the value of the loaned portion of the GIA) to pay the cost of
insurance provided under the Policy; the cost of any rider benefits provided;
any unpaid balance of the issue expense charge; and an administrative charge as
shown on the Schedule Page of the Policy. The administrative charge may vary but
in no event will it exceed $10 per month. Currently, the administrative charge
is $5 per month. See "Charges and Deductions."
OTHER CHARGES: A fee equal to the lesser of $25 or 2% of the partial
surrender amount paid is deducted from the Policy Value for each partial
surrender. A partial surrender charge equal to a pro rata portion of the
applicable surrender charge that would apply to a full surrender, determined by
applying a formula, also is assessed against the VUL Account Subaccounts or the
GIA when a partial surrender is made.
No charges are currently made from the VUL Account or the GIA for federal or
state income taxes. If Phoenix determines that such taxes may be imposed, it may
make deductions from the VUL Account to pay these taxes.
Phoenix charges each Subaccount of the VUL Account the daily equivalent of
0.80% for the first 15 years and then 0.25% on an annual basis of the current
value of the Subaccount's net assets for its assumption of certain mortality and
expense risks incurred in connection with Single Life Policies and 0.80% on an
annual basis for Multiple Life Policies.
Premium amounts also are reduced by any applicable premium tax, a federal
tax charge of 1.50% on Single Life Policies and, for payments made during a
grace period, by the amount needed to cover any monthly deductions made during
the grace period.
In addition, certain charges are deducted from the assets of the Funds. For
investment advisory services, each Series of a Fund pays the adviser a separate
monthly fee calculated on the basis of its average daily net assets during the
year. See "Charges and Deductions--Other Charges."
6. IS THERE A RIGHT TO CANCEL PERIOD?
Yes. The Policyowner may cancel the Policy within 10 days after the
Policyowner receives it (or longer in some states), or 10 days after Phoenix
mails or delivers a written notice of withdrawal right to the Policyowner, or
within 45 days of completing the application, whichever is latest.
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7. HOW ARE PREMIUMS ALLOCATED?
If the applicant elects the Temporary Money Market Allocation Amendment in
the application, Phoenix will allocate the entire Issue Premium, less applicable
charges, to the Money Market Subaccount of the VUL Account. Phoenix requires
this election for all applicants in certain states and for applicants in certain
states who indicate on their application that they intend the Policy to replace
existing insurance. At the expiration of the Right to Cancel Period for such
Policyowners, the Policy Value will be allocated among the Subaccounts of the
VUL Account or to the GIA in accordance with the Policyowner's allocation
instructions in the application for insurance. All other Policyowners will have
their Issue Premium less applicable charges allocated according to the
instructions in the application on the date it is received without first having
the premium placed in the Money Market Subaccount. The Policy Value may be
allocated among the available Subaccounts of the VUL Account, each of which
invests in shares of a designated portfolio of the Funds, or to the GIA.
8. AFTER THE INITIAL ALLOCATION, MAY I CHANGE THE ALLOCATION OF POLICY VALUE?
Yes. A Policyowner may transfer amounts among the Subaccounts of the VUL
Account or the GIA. Only one transfer per Policy Year is permitted from the
unloaned portion of the GIA. The amount of that transfer is limited to the
higher of $1,000 or 25% of the value of the Policy in the unloaned portion of
the GIA. Also, Phoenix reserves the right to require that transfers be made by
Written Request. Phoenix further reserves the right to permit transfers of less
than $500 only if the entire balance in the Subaccount of the VUL Account or the
GIA is transferred. A systematic transfer program also is available. See
"Transfer of Policy Value."
9. MAY THE POLICY BE SURRENDERED?
Yes. A Policyowner may totally surrender the Policy at any time and receive
the Cash Surrender Value. Subject to certain limitations, the Policyowner also
may partially surrender the Policy at any time prior to the Maturity Date. In
the future, Phoenix may set a minimum partial surrender amount, not to exceed
$500. See "Surrenders--Partial Surrenders." A partial surrender will result in a
decrease in the death benefit under the Policy. See "Death Benefit." If the
Policy is totally or partially surrendered during the first 10 Policy Years, a
surrender charge will apply. See "Surrender Charge." In addition, there may be
certain tax consequences as the result of a surrender. For example, a Policy may
be a modified endowment contract if the amount of premium paid during the first
seven Policy Years is more than the amount that would have been paid if the
Policy had provided for paid-up benefits after the payment of seven level annual
premiums. Distributions such as loans and full or partial surrenders under a
modified endowment contract may be taxable income to the extent they exceed the
premiums paid. If such income is distributed before the Policyowner attains age
59 1/2, a 10% penalty tax may be imposed. See "Federal Tax Considerations."
10. WHAT IS THE POLICY'S LOAN PRIVILEGE?
A Policyowner may obtain Policy loans in an amount up to 90% of the result
of subtracting the remaining surrender charge from the Policy Value. The
interest rate on a loan is at an effective annual rate as stated in the Policy,
compounded daily and payable on each Policy Anniversary in arrears. The
requested loan amount is transferred from the VUL Account to the loaned portion
of the GIA and is credited with interest at an effective annual rate as stated
in the Policy. Phoenix reserves the right not to allow loans of less than $500
unless the loans are to pay premiums on another policy issued by Phoenix. See
"The Policy--Policy Loans."
The proceeds of Policy loans may be subject to federal income tax under
certain circumstances. See "Federal Tax Considerations."
11. HOW ARE INSURANCE BENEFITS PAID?
Surrender and death benefits under the Policy may be paid in a lump sum or
under one of the payment options set forth in the Policy. See "Payment Options."
PERFORMANCE HISTORY
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From time to time, the VUL Account may include the performance history of
any or all Subaccounts, in advertisements, sales literature or reports.
Performance information about each Subaccount is based on past performance only
and is not an indication of future performance. THESE RATES OF RETURN ARE NOT AN
ESTIMATE OR GUARANTEE OF FUTURE PERFORMANCE. THEY DO NOT ILLUSTRATE HOW ACTUAL
PERFORMANCE WILL AFFECT THE BENEFITS UNDER A POLICY BECAUSE THEY DO NOT REFLECT
COST OF INSURANCE AND PREMIUM TAX CHARGES AND SURRENDER CHARGES, IF APPLICABLE.
FOR THIS INFORMATION, SEE APPENDIX B "ILLUSTRATIONS OF DEATH BENEFITS, POLICY
VALUES AND CASH SURRENDER VALUES." Performance information may be expressed as
yield and effective yield of the Money Market Subaccount, as yield of the
Multi-Sector Subaccount and as total return of any Subaccount. Current yield for
the Money Market Subaccount will be based on the income earned by the Subaccount
over a given seven-day period (less a hypothetical charge reflecting deductions
for expenses taken during the period) and then annualized, i.e., the income
earned in the period is assumed to be earned every seven days over a 52-week
period and is stated in terms of an annual percentage return on the investment.
Effective yield is calculated similarly but reflects the compounding effect of
earnings on reinvested dividends. Yield and effective yield reflect the
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.
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Example:
Assumptions:
Value of hypothetical pre-existing account with
exactly one Unit at the beginning of the period:........ 1.439995
Value of the same account (excluding capital
changes) at the end of the seven-day period:............ 1.441014
Calculation:
Ending account value ................................... 1.441014
Less beginning account value ........................... 1.439995
Net change in account value ............................ 0.001019
Base period return:
(adjusted change/beginning account value) .............. 0.000708
Current yield = return x (365/7) = ....................... 3.69%
Effective yield = [(1 + return)(365/7)] - 1 = ............ 3.76%
The current yield and effective yield information will fluctuate, and
publication of yield information may not provide a basis for comparison with
bank deposits, other investments which are insured and/or pay a fixed yield for
a stated period of time or other investment companies, due to charges which will
be deducted on the Account level.
For the Multi-Sector Subaccount, quotations of yield will be based on all
investment income per Unit earned during a given 30-day period (including
dividends and interest), less expenses accrued during the period ("net
investment income"), and are computed by dividing net investment income by the
maximum offering price per Unit on the last day of the period.
When a Subaccount advertises its total return, it usually will be calculated
for one year, five years and ten years or since inception if the Subaccount has
not been in existence for at least ten years. Total return is measured by
comparing the value of a hypothetical $10,000 investment in the Subaccount at
the beginning of the relevant period to the value of the investment at the end
of the period, assuming the reinvestment of all distributions at net asset value
and the deduction of the Mortality and Expense Risk, Issue Expense and Monthly
Administrative charges.
For those Subaccounts within the VUL Account that have not been available
for one of the quoted periods, the average annual total return quotations will
show the investment performance such Subaccount would have achieved (reduced by
the applicable charges) had it been available to invest in shares of the Fund
for the period quoted.
Below are quotations of average annual total return calculated as described
above for all subaccounts with at least one year of results. Policy charges
(including cost of insurance, premium tax charges, premium sales charges and
surrender charges) are not reflected.
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIOD ENDED 12/31/97
-----------------------------
COMMENCE- 10 LIFE OF
SUBACCOUNT MENT DATE 1 YEAR 5 YEARS YEARS FUND
- ---------- --------- ------ ------- ----- ----
Multi-Sector..... 1/1/83 7.92% 9.31% 9.32% 9.66%
Balanced......... 5/1/92 14.61% 9.38% N/A 9.86%
Allocation....... 9/17/84 17.34% 9.46% 10.70% 11.80%
Growth........... 1/1/83 17.67% 14.94% 15.99% 17.20%
International.... 5/1/90 8.87% 13.34% N/A 7.32%
Money Market..... 10/10/82 2.17% 2.79% 4.17% 5.04%
Real Estate...... 5/1/95 18.61% N/A N/A 25.23%
Theme............ 1/29/96 13.86% N/A N/A 11.87%
Asia............. 9/17/96 (34.41%) N/A N/A (28.08%)
Enhanced Index... 7/15/97 N/A N/A N/A 3.57%
U.S. Small Cap... 5/1/95 25.80% N/A N/A 32.34%
Int'l. Small Cap. 5/1/95 (4.27%) N/A N/A 21.28%
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% 20.12% 11.16% 4.35%
REAL ENHANCED U.S. INT'L.
YEAR ESTATE THEME ASIA INDEX SMALL CAP SMALL CAP
- ---- ------ ----- ---- ----- --------- ---------
1995.... 17.19%** N/A N/A N/A 16.01%** 33.96%**
1996.... 32.06% 9.55%** (0.06%)** N/A 45.64% 31.15%
1997.... 21.09% 16.25% (32.94%) 5.46%** 28.41% (2.24%)
* 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 Advisers' current investment strategies and
management style. Current strategies and style may change to respond to a
changing market and economic conditions. From time to time, the Series may
discuss specific portfolio holdings or industries in such communications. To
illustrate components of overall performance, the Series may separate their
cumulative and average annual returns into income results and capital gains or
losses; or cite separately as a return figure the equity or bond portion of a
Series' portfolio; or compare a Series' equity or bond return figure to
well-known indices of market performance including, but not limited to, Standard
& Poor's 500 Composite Stock Price Index (the "S&P 500"), Dow Jones Industrial
Average, First Boston High Yield Index and Solomon Brothers Corporate and
Government Bond Indices.
The VUL Account may, from time to time, include in advertisements containing
total returns, the ranking of those performance figures relative to such figures
for groups of Subaccounts having similar investment objectives as categorized by
ranking services such as Lipper Analytical Services, Inc. ("Lipper"), CDA
Investment Technologies, Inc. ("CDA"), 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
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indices for stock and bond market performance, such as the S&P 500, Dow Jones
Industrial Average, Europe Australia Far East Index (EAFE), Consumer Price
Index, Shearson Lehman Corporate Index and Shearson Lehman T-Bond Index. The S&P
500 is a commonly quoted market value-weighted and unmanaged index showing the
changes in the aggregate market value of 500 common stocks relative to the base
period 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 and redomiciled to New York in 1992. Its executive office is
at One American Row, Hartford, Connecticut 06102 and its main administrative
office is at 100 Bright Meadow Boulevard, Enfield, Connecticut 06083-1900. Its
New York principal office is at 10 Krey Boulevard, East Greenbush, New York
12144. Phoenix is the nation's 9th largest mutual life insurance company and has
consolidated assets of $18.5 billion. Phoenix sells insurance policies and
annuity contracts through its own field force of full time agents and through
brokers. Its operations are conducted in all 50 states, the District of
Columbia, Canada and Puerto Rico.
THE VUL ACCOUNT
The VUL Account is a separate account of Phoenix formed on June 17, 1985 and
governed under the laws of New York. It is registered as a unit investment trust
under the Investment Company Act of 1940 ("1940 Act"), as amended, and it meets
the definition of a "separate account" under that Act. Such registration does
not involve supervision of the management of the VUL Account or Phoenix by the
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 the Funds allocable to one of the available Series, each having the
specified investment objective set forth under "Investments of the VUL
Account--Participating Investment Funds."
Phoenix does not guarantee the investment performance of the VUL Account or
any of its Subaccounts. The Policy Value allocated to the VUL Account depends on
the investment performance of the Fund. Thus, the Policyowner bears the full
investment risk for all monies invested in the VUL Account.
The VUL Account is administered and accounted for as part of the general
business of Phoenix, but the income, gains or losses of the VUL Account are
credited to or charged against the assets held in the VUL Account, without
regard to other income, gains or losses of any other business Phoenix may
conduct. Under New York law, the assets of the VUL Account are not chargeable
with liabilities arising out of any other business Phoenix may conduct.
Nevertheless all obligations arising under the Policy are general corporate
obligations of Phoenix.
THE GIA
The GIA is not part of the VUL Account. It is accounted for as part of the
General Account. Phoenix reserves the right to limit cumulative deposits,
including transfers, to the unloaned portion of the GIA to no more than $250,000
during any one-week period. Phoenix will credit interest daily on the amounts
allocated under the Policy to the GIA. The credited rate will be uniform by
class. The loaned portion of the GIA will be credited interest at an effective
annual fixed rate of 2% for Single Life Policies (4% on Single Life Policies in
New York), and 6% for Multiple Life Policies. Interest on the unloaned portion
of the GIA will be credited at an effective annual rate of not less than 4%.
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 guarantee period of one full year from the date the new rate is applied. For
more complete information concerning the GIA, see Appendix A.
THE POLICY
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INTRODUCTION
The Policy is a variable life insurance policy. The Policy has a death
benefit, Cash Surrender Value and loan privilege such as is associated with a
traditional fixed benefit whole life policy. The Policy differs from a fixed
benefit whole life policy, however, because the Policyowner specifies into which
of several Subaccounts of the VUL Account or the GIA net premium is to be
allocated. Each Subaccount of the VUL Account, in turn, invests its assets
exclusively in a portfolio of the Funds. The Policy Value varies according to
the investment performance of the Series to which Policy Value has been
allocated.
ELIGIBLE PURCHASERS
Any person up to the age of 75 is eligible to be insured under a newly
purchased Policy after providing acceptable evidence of insurability. A person
can purchase a Policy to insure the life of another person provided that the
Policyowner has an insurable interest in the life of the Insured, and the
Insured consents. A Policy also can be purchased to cover from two to five lives
under one Policy, for any person up to the age of 80. Under such a Multiple Life
Policy, the death benefit is paid upon the first death under the Policy;
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the Policy then terminates. Such a Policy could be purchased on the lives of
spouses, family members, business partners or other related groups.
PREMIUM PAYMENT
The minimum Issue Premium for a Policy is generally 1/6 of the Planned
Annual Premium. The Issue Premium is due on the Policy Date. The Insured must be
alive when the Issue Premium is paid. Thereafter, the amount and payment
frequency of planned premiums are as shown on the Schedule Page of the Policy.
All premiums are payable at VPMO, except that the Issue Premium may be paid to
an authorized agent of Phoenix for forwarding to the Underwriting Department of
Phoenix.
Any premium payments will be reduced by the applicable premium tax and
Single Life Policies also will be reduced by a federal tax charge of 1.50%. The
Issue Premium also will be reduced by the issue expense charge on a pro rata
basis in equal monthly installments over a 12-month period. Any unpaid balance
of the issue expense charge will be paid to Phoenix upon Policy lapse or
termination.
Premium payments received during a grace period also will be reduced by the
amount needed to cover any monthly deductions during the grace period. The
remainder will be applied on the Payment Date to the various Subaccounts of the
VUL Account or to the GIA, based on the premium allocation schedule elected in
the application for the Policy or as later changed. The allocation schedule for
premium payments may be changed by calling VULA or writing to VPMO. Allocations
to the VUL Account Subaccounts or to the GIA must be expressed in terms of whole
percentages.
The number of Units credited to a Subaccount of the VUL Account will be
determined by dividing the portion of the net premium applied to that Subaccount
by the Unit value of the Subaccount on the Payment Date.
A Policyowner may increase or decrease the planned premium amount or payment
frequency at any time by Written Request to VPMO. Phoenix reserves the right to
limit increases to such maximums as may be established from time to time.
Additional premium payments may be made at any time. Each premium payment must
at least equal $25 or, if made during a grace period, the payment must equal the
amount needed to prevent lapse of the Policy.
A Policyholder also may elect a Waiver of Premium Rider. This rider provides
for the waiver of certain premium payments under the Policy under certain
conditions during a period of total disability of the Insured. Under its terms,
the specified premium will be waived upon Phoenix's receipt of proof that the
Insured is totally disabled and that the disability occurred while the rider was
In Force.
The Policy contains a total premium limit as shown on the Schedule Page.
This limit is applied to the sum of all premiums paid under the Policy. If the
total premium limit is exceeded, the Policyowner will receive the excess, with
interest at an annual rate of not less than 4%, not later than 60 days after the
end of the Policy Year in which the limit was exceeded. The Policy Value then
will be adjusted to reflect the refund. The amount to be taken from each
Subaccount or the GIA will be allocated in the same manner as provided for
monthly deductions unless the Policyowner requests otherwise In Writing. The
total premium limit may be exceeded if additional premium is needed to prevent
lapse or if Phoenix determines that additional premium would be permitted by
federal laws or regulations.
A Policyowner may authorize his bank to draw $25 or more from his personal
checking account monthly to purchase Units in any available Subaccount. The
amount the Policyowner designates will be automatically invested in the
Subaccount of his choice on the date the bank draws on his account.
Policies sold to officers, directors and employees of Phoenix (and their
spouses and children) will be credited with an amount equal to the first-year
commission that would apply on the amount of premium contributed. This option
also is available to career agents of Phoenix (and their spouses and children).
ALLOCATION OF ISSUE PREMIUM
Phoenix will generally allocate the Issue Premium less applicable charges to
the VUL Account or to the GIA upon receipt of a completed application, in
accordance with the allocation instructions in the application for a Policy.
However, Policies issued in certain states, and Policies issued in certain
states pursuant to applications which state the Policy is intended to replace
existing insurance, are issued with a Temporary Money Market Allocation
Amendment. Under this Amendment, Phoenix temporarily allocates the entire Issue
Premium paid less applicable charges (along with any other premiums paid during
the Right to Cancel Period) to the Money Market Subaccount of the VUL Account,
and, at the expiration of the Right to Cancel Period, the Policy Value of the
Money Market Subaccount is allocated among the Subaccounts of the VUL Account or
to the GIA in accordance with the applicant's allocation instructions in the
application for insurance.
RIGHT TO CANCEL PERIOD
A Policy may be returned by mailing or delivering it to Phoenix within 10
days after the Policyowner receives it (or longer in some states); within 10
days after Phoenix mails or delivers a written notice of withdrawal right to the
Policyowner; or within 45 days after the applicant signs the application for
insurance, whichever occurs latest (the "Right to Cancel Period"). The returned
Policy is treated as if Phoenix never issued the Policy and, except for Policies
issued with a Temporary Money Market Allocation Amendment, Phoenix will return
the sum of the following as of the date Phoenix receives the returned Policy:
(i) the then current Policy Value less any unpaid loans and loan interest; plus
(ii) any monthly deductions, partial surrender fees, other charges made under
the Policy, including investment advisory fees, or any Fund expenses deducted.
The amount returned for Policies issued with the Amendment will equal any
premiums paid less any unrepaid loans and loan interest, and less any partial
surrender amounts paid.
Phoenix reserves the right to disapprove an application for processing
within 7 days of receipt at Phoenix of the completed application for insurance,
in which event Phoenix will return the premium paid. Even after approval of the
application for processing, Phoenix reserves the right to decline issuance of
the Policy, in which event Phoenix will refund the applicant the same amount as
would
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have been refunded under the Policy had it been issued but returned for refund
during the Right to Cancel Period.
TEMPORARY INSURANCE COVERAGE
On the date the application for a Policy is signed and submitted with the
Issue Premium, Phoenix issues a Temporary Insurance Receipt in connection with
the application. Under the Temporary Insurance Receipt, the insurance protection
applied for (subject to the limits of liability and in accordance with the terms
set forth in the Policy and in the Receipt) takes effect on the date of the
application.
TRANSFER OF POLICY VALUE
SYSTEMATIC TRANSFER PROGRAM
A Policyowner may elect to 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. A Policyowner must have an
initial value of $1,000 in the GIA or the Subaccount from which funds will be
transferred ("Sending Subaccount") and if the value in that Subaccount or the
GIA drops below the elected transfer amount, the entire remaining balance will
be transferred and no more systematic transfers will be processed. Funds may be
transferred from only one Sending Subaccount or the GIA, but may be allocated to
multiple Subaccounts ("Receiving Subaccount"). Under the Systematic Transfer
Program, Policyowners may make more than one transfer per Policy Year from the
GIA, in approximately equal amounts over a minimum 18-month period.
Only one Systematic Transfer Program can be active per Policy. After the
completion of the Systematic Transfer Program, you can call VULA at 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 business day.
NON-SYSTEMATIC TRANSFERS
Transfers among available Subaccounts or the GIA and changes in premium
payment allocations may be requested In Writing or by calling 800/541-0171,
between the hours of 8:30 a.m. and 4:00 p.m. Eastern Time and will be executed
on the date the request is received at VPMO, except as noted below. Unless the
Policyowner elects In Writing not to authorize telephone transfers or allocation
changes, telephone transfer orders and allocation changes also will be accepted
on behalf of the Policyowner from his or her registered representative. Phoenix
and Phoenix Equity Planning Corporation ("PEPCO") will employ reasonable
procedures to confirm that telephone instructions are genuine. They will require
verification of account information and will record telephone instructions on
tape. All telephone transfers will be confirmed In Writing to the Policyowner.
To the extent that procedures reasonably designed to prevent unauthorized
transfers are not followed, Phoenix and PEPCO may be liable for following
telephone instructions for transfers that prove to be fraudulent. However, the
Policyowner would bear the risk of loss resulting from instructions entered by
an unauthorized third party that Phoenix and PEPCO reasonably believe to be
genuine. These telephone transfer privileges may be modified or terminated at
any time and during times of extreme market volatility, may be difficult to
exercise. In such cases, the Policyowner should submit a Written Request.
Phoenix reserves the right to permit transfers of less than $500 only if the
entire balance in the Subaccount or the GIA is transferred or if the Systematic
Transfer Program has been elected.
Phoenix reserves the right to prohibit a transfer to any Subaccount of the
VUL Account where the resultant value of the Policy's share in that Subaccount
immediately after the transfer would be less than $500. It further reserves the
right to require that the entire balance of a Subaccount or the GIA be
transferred if the value of the Policy's share in the Subaccount would,
immediately after the transfer, be less than $500.
Unless Phoenix agrees otherwise or the Systematic Transfer Program has been
elected, a Policyowner may make only one transfer per Policy Year from the
unloaned portion of the GIA and the amount that may be transferred cannot exceed
the greater of $1,000 or 25% of the value of the Policy in the unloaned portion
of the GIA at the time of the transfer. Non-systematic transfers from the
unloaned portion of the GIA will be effectuated on the date of receipt by VPMO.
Phoenix reserves the right to limit the number of Subaccounts you may elect
to a total of 18 at any one time and/or over the life of the Policy unless
required to be less to comply with changes in federal and/or state regulation,
including tax, securities and insurance law.
For policies issued with the Temporary Money Market Allocation Amendment,
transfers may not be made until termination of the Right to Cancel Period.
Because excessive trading can hurt Fund performance and harm Policyowners,
Phoenix reserves the right to temporarily or permanently terminate exchange
privileges or reject any specific order from anyone whose transactions seem to
follow a timing pattern, including those who request more than one exchange out
of a Subaccount within any 30-day period. Phoenix will not accept batch transfer
instructions from registered representatives (acting under powers of attorney
for multiple Policyowners), unless the registered representative's broker-dealer
firm and Phoenix have entered into a third party transfer service agreement.
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
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Subaccount of the VUL Account on a day other than a Valuation Date is the Unit
value on the next Valuation Date. Unit values are carried to 6 decimal places.
The Unit value of each Subaccount of the VUL Account on a Valuation Date is
determined at the end of that day.
The Net Investment Factor for each Subaccount of the VUL Account is
determined by the investment performance of the assets held by the Subaccount
during the Valuation Period. Each valuation will follow applicable law and
accepted procedures. The Net Investment Factor is equal to item (D) below
subtracted from the result of dividing the sum of items (A) and (B) by item (C).
(A) The value of the assets in the Subaccount on the current Valuation
Date, including accrued net investment income and realized and
unrealized capital gains and losses, but excluding the net value of any
transactions during the current Valuation Period.
(B) The amount of any dividend (or, if applicable, any capital gain
distribution) received by the Subaccount if the "ex-dividend" date for
shares of the Fund occurs during the current Valuation Period.
(C) The value of the assets in the Subaccount as of the just prior
Valuation Date, including accrued net investment income and realized
and unrealized capital gains and losses, and including the net value of
all transactions during the Valuation Period ending on that date.
(D) The sum of the following daily charges multiplied by the number of days
in the current Valuation Period:
1. the mortality and expense risk charge; and
2. the charge, if any, for taxes and reserves for taxes on investment
income, and realized and unrealized capital gains.
DEATH BENEFIT
GENERAL
The death benefit (under Option 1) equals the Policy's face amount on the
date of the Insured's death or, if greater, the minimum death benefit on the
date of death. On Single Life Policies, under Option 2, the death benefit equals
the Policy's face amount on the date of the Insured's death plus the Policy
Value. On Multiple Life Policies, under Option 2, the death benefit equals the
Policy's face amount on the date of the first Insured's death plus the Policy
Value to the later of the 10th Policy Anniversary or Policy Anniversary nearest
the oldest Insured's 65th birthday. Under either Option, the minimum death
benefit is the Policy Value on the date of death of the Insured increased by the
applicable percentage from the table contained in the Policy, based on the
Insured's Attained Age at the beginning of the Policy Year in which the death
occurs. If no option is elected, Option 1 will apply.
GUARANTEED DEATH BENEFIT OPTION
For Policies with a face amount of at least $50,000, a guaranteed death
benefit rider may be purchased. Under this Policy rider, if a Policyowner pays
the required premium each year as specified in the rider, the death benefit
selected will be guaranteed for a certain specified number of years, regardless
of the investment performance of the Policy, and will equal either the initial
face amount or the face amount as later changed by increases or decreases. In
order to keep this guaranteed death benefit In Force, there may be limitations
on the amount of partial surrenders or decreases in face amount permitted.
LIVING BENEFITS OPTION
In the event of a terminal illness of the Insured, an accelerated payment of
up to 75% of the Policy's death benefit (up to a maximum of $250,000) is
available if a Living Benefits Rider has been purchased. The minimum face amount
of the Policy after any such accelerated benefit payment is $10,000.
REQUESTS FOR INCREASE IN FACE AMOUNT
Any time after the first Policy Anniversary, a Policyowner may request an
increase in the face amount of insurance provided under the Policy. Requests for
face amount increases must be made In Writing, and Phoenix requires additional
evidence of insurability. The effective date of the increase generally will be
the Policy Anniversary following approval of the increase. The increase may not
be less than $25,000 and no increase will be permitted after the Insured's age
75. The charge for the increase is $1.50 per thousand of face amount increase
requested subject to a maximum of $600. No additional monthly administration
charge will be assessed for face amount increases. Phoenix will deduct any
charges associated with the increase (the increases in cost of insurance
charges), from the Policy Value, whether or not the Policyowner pays an
additional premium in connection with the increase. The surrender charge
applicable to the Policy also will increase. At the time of the increase, the
Cash Surrender Value must be sufficient to pay the monthly deduction on that
date, or additional premiums will be required to be paid on or before the
effective date. Also, a new Right to Cancel Period (see "The Policy--Right to
Cancel Period") will be established for the amount of the increase. For a
discussion of possible implications of a material change in the Policy resulting
from the increase, see "Material Change Rules."
PARTIAL SURRENDER AND DECREASES IN FACE AMOUNT: EFFECT ON DEATH BENEFIT
A partial surrender or a decrease in face amount generally decreases the
death benefit. Upon a decrease in face amount or partial surrender, a partial
surrender charge will be deducted from Policy Value based on the amount of the
decrease or partial surrender. With a decrease in face amount, the death benefit
under a Policy would be reduced on the next Monthly Calculation Day. With a
partial surrender, the death benefit under a Policy would be reduced
immediately. A decrease in the death benefit may have certain tax consequences.
See "Federal Tax Considerations."
REQUESTS FOR DECREASE IN FACE AMOUNT
A Policyowner may request a decrease in face amount at any time after the
first Policy Year. Unless Phoenix agrees otherwise, the decrease must at least
equal $10,000 and the face amount remaining after the decrease must at least
equal $25,000. All face amount decrease requests must be In Writing and will be
effective on the first Monthly Calculation Day following the date Phoenix
approves the request. A partial surrender charge will be deducted from the
Policy Value based on the amount of the decrease. The charge will equal the
applicable surrender charge that would apply to a full surrender multiplied by a
fraction (the decrease in face amount divided by the face amount of the Policy
before the decrease).
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SURRENDERS
GENERAL
At any time during the lifetime of the Insured(s) and while the Policy is In
Force, the Policyowner may partially or fully surrender the Policy by sending a
written release and surrender in a form satisfactory to Phoenix to VPMO, along
with the Policy if Phoenix so requires. The amount available for surrender is
the Cash Surrender Value at the end of the Valuation Period during which the
surrender request is received at VPMO.
Upon partial or full surrender, Phoenix generally will pay the amount
surrendered to the Policyowner within seven days after Phoenix receives the
Written Request for the surrender. Under certain circumstances, the surrender
payment may be postponed. See "General Provisions--Postponement of Payments."
For the federal tax effects of partial and full surrenders, see "Federal Tax
Considerations."
FULL SURRENDERS
If the Policy is being fully surrendered, the Policy itself must be returned
to VPMO, along with the written release and surrender of all claims in a form
satisfactory to Phoenix. A Policyowner may elect to have the amount paid in a
lump sum or under a payment option. See "Surrender Charge" and "Payment
Options."
PARTIAL SURRENDERS
A Policyowner may obtain a partial surrender of the Policy by requesting
that part of the Policy's Cash Surrender Value be paid. The Policyowner may do
this at any time during the lifetime of the Insured while the Policy is In Force
with a Written Request to VPMO. Phoenix reserves the right to require that the
Policy be returned before payment is made. A partial surrender will be effective
on the date the Written Request is received or, if required, the date the Policy
is received. Surrender proceeds may be applied under any of the payment options
described under "Payment of Proceeds--Payment Options."
Phoenix reserves the right not to allow partial surrenders of less than
$500. In addition, if the share of the Policy Value in any Subaccount or in the
GIA that would be reduced as a result of a partial surrender would, immediately
after the partial surrender, be less than $500, Phoenix reserves the right to
require that as part of any partial surrender, the entire remaining balance in
that Subaccount or the GIA be surrendered.
Upon a partial surrender the Policy Value will be reduced by the sum of the
following:
(i) The Partial Surrender Amount Paid. This amount comes from a reduction in
the Policy's share in the value of each Subaccount or the GIA based on
the allocation requested at the time of the partial surrender. If no
allocation request is made, the assessment to each Subaccount will be
made in the same manner as that provided for monthly deductions.
(ii) The Partial Surrender Fee. This fee is the lesser of $25 or 2% of the
partial surrender amount paid. The assessment to each Subaccount or the
GIA will be made in the same manner as provided for the partial
surrender amount paid.
(iii) A Partial Surrender Charge. This charge is equal to a pro rata portion
of the applicable surrender charge that would apply to a full surrender,
determined by multiplying the applicable surrender charge by a fraction
(equal to the partial surrender amount payable divided by the result of
subtracting the applicable surrender charge from the Policy Value). This
amount is assessed against the Subaccount or the GIA in the same manner
as provided for the partial surrender amount paid.
The Cash Surrender Value will be reduced by the partial surrender amount
paid plus the partial surrender fee. The face amount of the Policy also will be
reduced by the same amount as the Policy Value is reduced as described above.
POLICY LOANS
While the Policy is In Force, a loan may be obtained against the Policy up
to the available loan value. The loan value on any day is 90% of the result of
subtracting the then remaining surrender charge from the Policy Value. The
available loan value is the loan value on the current day less any outstanding
Debt.
The amount of any loan will be added to the loaned portion of the GIA and
subtracted from the Policy's share of the Subaccounts or the unloaned portion of
the GIA, based on the allocation requested at the time of the loan. The total
reduction will equal the amount added to the loaned portion of the GIA.
Allocations generally must be expressed in terms of whole percentages. If no
allocation request is made, the amount subtracted from the share of each
Subaccount or the unloaned portion of the GIA will be determined in the same
manner as provided for monthly deductions. Interest will be credited and the
loaned portion of the GIA will increase at an effective annual rate of 2% (4% in
New York and New Jersey only) on Single Life Policies and 6% on Multiple Life
Policies, compounded daily and payable in arrears. At the end of each Policy
Year and at the time of any Debt repayment, interest credited to the loaned
portion of the GIA will be transferred to the unloaned portion of the GIA.
Debt may be repaid at any time during the lifetime of the Insured while the
Policy is In Force. Any Debt repayment received by Phoenix during a grace period
will be reduced to cover any overdue monthly deductions and only the balance
will be applied to reduce the Debt. Such balance, in excess of any outstanding
accrued loan interest, will be applied to reduce the loaned portion of the GIA
and will be transferred to the unloaned portion of the GIA to the extent that
loaned amounts taken from such Account have not been previously repaid.
Otherwise, such balance will be transferred among the Subaccounts as the
Policyowner requests upon repayment and, if no allocation request is made,
according to the most recent premium allocation schedule on file.
While there is outstanding Debt on the Policy, any payments received by
Phoenix for the Policy will be applied directly to reduce the Debt unless
specified as a premium payment by the Policyowner. Until the Debt is fully
repaid, additional Debt repayments may be made at any time during the lifetime
of the Insured while the Policy is In Force.
Failure to repay a Policy loan or to pay loan interest will not terminate
the Policy except as otherwise provided under the terms of the Policy concerning
the grace period and lapse.
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The proceeds of Policy loans may be subject to federal income tax under
certain circumstances. See "Federal Tax Considerations."
In the future, Phoenix may not allow Policy loans of less than $500, unless
such loan is used to pay a premium on another Phoenix Policy.
The Policyowner will pay interest on the loan at an effective annual rate,
compounded daily and payable in arrears. The loan interest rates in effect are
as follows:
SINGLE LIFE POLICIES
--------------------
4% for Policy Years 1 through 10 (or the Insured's age 65 if earlier)
3% through Policy Year 15
2 1/2% for Policy Years 16 and thereafter
SINGLE LIFE POLICIES--NEW YORK & NEW JERSEY ONLY
------------------------------------------------
6% for Policy Years 1 through 10 (or the Insured's age 65 if earlier)
5% through Policy Year 15
4 1/2% for Policy Years 16 and thereafter
MULTIPLE LIFE POLICIES
----------------------
8% for Policy Years 1 through 10
7% for Policy Years 11 and thereafter
At the end of each Policy Year, any interest due on the Debt will be treated
as a loan and will be offset by a transfer from the Policyowner's values to the
value of the loaned portion of the GIA.
A Policy loan, whether or not repaid, has a permanent effect on the Policy
Value because the investment results of the Subaccounts or unloaned portion of
the GIA will apply only to the amount remaining in the Subaccounts or the
unloaned portion of the GIA. The longer a loan is outstanding, the greater the
effect is likely to be. The effect could be favorable or unfavorable. If the
Subaccounts or the unloaned portion of the GIA earn more than the annual
interest rate for funds held in the loaned portion of the GIA, Policy Value does
not increase as rapidly as it would have had no loan been made. If the
Subaccounts or the GIA earn less than the annual interest rate for funds held in
the loaned portion of the GIA, Policy Value is greater than it would have been
had no loan been made. A Policy loan, whether or not repaid, also has an effect
on the Policy's Death Benefit due to any resulting differences in Cash Surrender
Value.
LAPSE
Unlike conventional life insurance policies, the payment of the Issue
Premium, no matter how large, or the payment of additional premiums will not
necessarily continue the Policy In Force to its Maturity Date.
If on any Monthly Calculation Day during the first 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 Phoenix mailed
written notice to the Policyowner. If a premium payment for the additional
amount is received by Phoenix during the grace period, any amount of premium
over what is required to prevent lapse will be allocated among the Subaccounts
of the VUL Account or to the GIA in accordance with the then current premium
allocation schedule. In determining the amount of "excess" premium to be applied
to the Subaccounts or the GIA, Phoenix will deduct the premium tax and the
amount needed to cover any monthly deductions made during the grace period. If
the Insured dies during the grace period, the death benefit will equal the
amount of the death benefit immediately prior to the commencement of the grace
period.
PAYMENT OF PREMIUMS DURING PERIOD OF DISABILITY
A Policyholder also may elect a Waiver of Premium Rider. This rider provides
for the waiver of certain premium payments under the Policy under certain
conditions during a period of total disability of the Insured. Under its terms,
the specified premium will be waived upon Phoenix's receipt of proof that the
Insured is totally disabled and that the disability occurred while the rider was
In Force. The terms of this rider may vary by state.
ADDITIONAL INSURANCE OPTIONS
While the Policy is In Force and the Policyowner is insurable, the
Policyowner will have the option to purchase additional insurance on the same
Insured with the same guaranteed rates as the Policy without being assessed an
issue expense charge. Phoenix will require evidence of insurability and charges
will be adjusted for the Insured's new Attained Age and any change in risk
classification. However, if elected on the application, the Policyowners may, at
predetermined future dates, purchase additional insurance protection on the same
Insured without evidence of insurability. See "Purchase Protection Plan Riders."
In addition, once each Policy Year, for Single Life Policies only, a
Policyowner may request an increase in face amount. This request should be made
within 90 days prior to the Policy Anniversary and is subject to an issue
expense charge of $1.50 per $1,000 of increase in face amount, up to a maximum
of $600, and to Phoenix's receipt of adequate evidence of insurability. A Right
to Cancel Period as described in "The Policy" section of this Prospectus applies
to each increase in face amount.
ADDITIONAL RIDER BENEFITS
A Policyowner may elect additional benefits under a Policy. These benefits
are cancellable by the Policyowner at any time. A charge will be deducted
monthly from the Policy Value for each additional rider benefit chosen except
where noted below. More details will be included in the form of a rider to the
Policy if any of these benefits is chosen. The following benefits are currently
available; however, additional riders may be available as described in the
Policy.
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SINGLE LIFE POLICIES:
O DISABILITY WAIVER OF SPECIFIED PREMIUM RIDER
Phoenix waives the specified premium if the Insured becomes totally
disabled and the disability continues for at least six months. Premiums will
be waived to the Policy Anniversary nearest the Insured's 65th birthday
(provided that the disability continues), unless premiums have been waived
continuously during the entire five years prior to such date in which case
the waiver will continue beyond that date. The premium will be waived upon
Phoenix's receipt of notice that the Insured is totally disabled and that
the disability occurred while the rider was In Force. The terms vary in New
York.
O ACCIDENTAL DEATH BENEFIT RIDER
An additional death benefit will be paid if the Insured dies from bodily
injury that results from an accident; if the Insured dies no later than 90
days after injury; and before the Policy Anniversary nearest the Insured's
75th birthday.
O DEATH BENEFIT PROTECTION RIDER
The purchase of this rider provides that the death benefit will be
guaranteed. The amount of the guaranteed death benefit is equal to the
initial face amount, or the face amount that later may be increased or
decreased by the Policyholder provided that certain minimum premiums are
paid. Unless Phoenix agrees otherwise, the initial face amount and the face
amount remaining after any decrease must at least equal $50,000 and the
minimum issue age of the Insured is 20. Three (3) Death Benefit Guarantee
periods are available in all states except New York. The minimum premium
required to maintain the guaranteed death benefit is based on the length of
the guarantee period as elected on the application. The three available
guarantee periods are:
Level: Expiry Date of Death Benefit Guaranteed, the later of:
1 The Policy Anniversary nearest the Insured's 70th
birthday or the 7th Policy Year
2 The Policy Anniversary nearest the Insured's 80th
birthday or the 10th Policy Year
3 The Policy Anniversary nearest the Insured's 95th birthday.
Level 1 or 2 guarantees may be extended provided that the Policy's Cash
Surrender Value is sufficient and the Policyowner pays the new Minimum Required
Premium.
For Policies issued in New York, two guarantee periods are available:
1 The Policy Anniversary nearest the Insured's 75th birthday
or the 10th Policy Year
2 The Policy Anniversary nearest the Insured's 95th birthday.
O WHOLE LIFE EXCHANGE OPTION RIDER
This rider permits the Policyowner to exchange the Policy for a fixed
benefit whole life policy at the later of age 65 or Policy Year 15. There is
no charge for this rider.
O PURCHASE PROTECTION PLAN RIDER
Under this rider a Policyowner may, at predetermined future dates,
purchase additional insurance protection without evidence of insurability.
O LIVING BENEFITS RIDER
Under certain conditions, in the event of the terminal illness of the
Insured, an accelerated payment of up to 75% of the Policy's death benefit
(up to a maximum of $250,000) is available. The minimum face amount of the
Policy after any such accelerated benefit payment is $10,000. There is no
charge for this rider.
O CASH VALUE ACCUMULATION RIDER
This rider generally permits a Policyowner to pay more in premium than
otherwise would be permitted. This rider must be elected before the Policy
is issued. There is no charge for this rider.
O CHILD TERM RIDER
This rider provides annually renewable term coverage on children of the
Insured who are between 14 days old and age 18. The term insurance is
renewable to age 25. Each child will be insured under a separate rider and
the amount of insurance must be the same. Coverage may be converted to a new
whole life or variable insurance policy at any time prior to the Policy
Anniversary nearest the insured child's 25th birthday.
O FAMILY TERM RIDER
This rider provides annually renewable term insurance coverage to age 70
on the Insured or members of the Insured's immediate family who are at least
18 years of age. The rider is fully convertible through age 65 for each
Insured to either a fixed benefit or variable policy.
O BUSINESS TERM RIDER
This rider provides annually renewable term insurance coverage to age 95
on the life of the Insured under the base Policy. The face amount of the
term insurance may be level or increasing. The initial rider death benefit
cannot exceed 6 times the initial base Policy. This rider is only available
for Policies sold in the Corporate Owned Life Insurance or employer
sponsored life insurance market.
MULTIPLE LIFE POLICIES:
O DISABILITY BENEFIT RIDER
In the case of disability of the Insured, a specified monthly amount may
be credited to the Policy and the monthly deductions will be waived. A
Disability Benefit Rider may be provided on any or all eligible Insureds.
The specified amount selected must be the same for all who elect coverage.
O SURVIVOR PURCHASE OPTION RIDER
The survivor(s) may purchase a new Multiple Life Policy for a face
amount equal to that of the original Policy upon the first death. The new
Policy will be based upon Attained Age rates.
O TERM INSURANCE RIDER
The Term Insurance Rider enables the face amount of coverage on each
life to be individually specified. A rider is available for each Insured and
the face amount of coverage under
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the rider may differ for each Insured. Based upon the Policyowner's election
at issue, the rider will provide coverage for all Insureds to either age 70
or maturity of the Policy. The termination age specified must be the same
for all Insureds.
O POLICY EXCHANGE OPTION RIDER
The Multiple Life Policy may be exchanged for Single Life Policies where
the total face amount under the Policies is no greater than that under the
original Policy. There is no charge for this rider.
INVESTMENTS OF THE VUL ACCOUNT
- --------------------------------------------------------------------------------
PARTICIPATING 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.
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SCHAFER MID-CAP VALUE ("SCHAFER MID-CAP") SERIES: The primary investment
objective of the Schafer Mid-Cap Series is to seek long-term capital
appreciation, with current income as the secondary investment objective. The
Schafer Mid-Cap Series will invest in common stocks of established companies
having a strong financial position and a low stock market valuation at the time
of purchase which are believed to offer the possibility of increase in value.
WANGER ADVISORS TRUST
Certain Subaccounts of the VUL Account invest in corresponding Series of the
Wanger Advisors Trust. The following Series are currently available through the
Policies:
WANGER U.S. SMALL CAP ("U.S. SMALL CAP") SERIES: The investment objective of
the U.S. Small Cap Series is to provide long-term growth. The U.S. Small Cap
Series invests primarily in securities of U.S. companies with total common stock
market capitalization of less than $1 billion.
WANGER INTERNATIONAL SMALL CAP ("INTERNATIONAL SMALL CAP") SERIES: The
investment objective of the International Small Cap Series is to provide
long-term growth. The International Small Cap Series invests primarily in
securities of non-U.S. companies with total common stock market capitalization
of less than $1 billion.
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 Home Life 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
invest in the Fund(s) simultaneously. Although neither Phoenix nor the Fund(s)
currently foresees any such disadvantages either to variable life insurance
Policyowners or to variable annuity Contract Owners, the Funds' trustees intend
to monitor events in order to identify any material conflicts between variable
life insurance Policyowners and variable annuity Contract Owners and to
determine what action, if any, should be taken in response thereto. Material
conflicts could result from, for example, (1) changes in state insurance laws,
(2) changes in federal income tax laws, (3) changes in the investment management
of any portfolio of the Fund(s) or (4) differences in voting instructions
between those given by variable life insurance Policyowners and those given by
variable annuity Contract Owners. Phoenix will, at its own expense, remedy such
material conflict including, if necessary, segregating the assets underlying the
variable life insurance policies and the variable annuity contracts and
establishing a new registered investment company.
INVESTMENT ADVISERS
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")
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Seneca Mid-Cap Series Seneca Capital Management, LLC ("Seneca")
Schafer Mid-Cap Series Schafer Capital Management, Inc.
The investment adviser to the Real Estate Series is Duff & Phelps Investment
Management Co. ("DPIM").
The investment adviser to the Asia Series is Phoenix-Aberdeen International
Advisors LLC ("PAIA"). Pursuant to subadvisory agreements with the Fund, PAIA
delegates certain investment decisions and research functions with respect to
the Asia Series to PIC and Aberdeen Fund Managers, Inc.
PIC, DPIM, Engemann and Seneca are indirect, less than wholly-owned
subsidiaries of Phoenix. PAIA is jointly owned and managed by PM Holdings, Inc.,
a subsidiary of Phoenix, and Aberdeen Fund Managers, Inc.
The investment adviser to the Wanger Advisors Trust is Wanger Asset
Management, L.P.
The investment adviser for the Stock, TPT Asset Allocation and TPT
International Series is Templeton Investment Counsel, Inc.
Templeton Asset Management, Ltd. is the investment adviser for the
Developing Markets Series.
Franklin Mutual Advisers, Inc. is the investment adviser for the Shares
Series.
SERVICES OF THE ADVISERS
The Advisers continuously furnish an investment program for each Series and
manage the investment and reinvestment of the assets of each Series subject at
all times to the authority and supervision of the Trustees. A detailed
discussion of the investment advisers and subadvisers, and the investment
advisory and subadvisory agreements, is contained in the accompanying prospectus
for the Funds.
REINVESTMENT AND REDEMPTION
All dividend distributions of the 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
- -------------------------------------------------------------------------------
Charges are deducted in connection with the Policy to compensate Phoenix
for: (1) incurring expenses in distributing the Policy; (2) issuing the Policy;
(3) premium and federal taxes incurred on premiums received; (4) providing the
insurance benefits set forth in the Policy; and (5) assuming certain risks in
connection with the Policy. The nature and amount of these charges are described
more fully below.
1. MONTHLY DEDUCTION
A charge is deducted monthly from the Policy Value under a Policy ("monthly
deduction") to pay: the cost of insurance provided under the Policy, the cost of
any rider benefits provided, any unpaid balance of the issue expense charge, and
an administrative charge. This administrative charge is currently set at $5 per
month but it is guaranteed not to exceed $10 per month. The monthly deduction is
deducted on each Monthly Calculation Day. It is allocated among the Subaccounts
of the VUL Account and the unloaned portion of the GIA based on the allocation
schedule for monthly deductions specified by the applicant in the application
for a Policy or as later changed by the Policyowner. In the event that the
Policy's share in the value of the Subaccounts or the unloaned portion of the
GIA is insufficient to permit the withdrawal of the full monthly deduction, the
remainder will be taken on a proportionate basis from the Policy's share of each
of the other Subaccounts and the unloaned portion of the GIA. The number of
Units deducted will be determined by dividing the portion of the monthly
deduction allocated to each Subaccount or to the unloaned portion of the GIA by
the Unit value on the Monthly Calculation Day. Because portions of the monthly
deduction, such as the cost of insurance, can vary from month to month, the
monthly deduction itself may vary in amount from month to month.
(A) ISSUE EXPENSE CHARGE. A cost-based issue administration charge is
assessed on a pro rata basis in equal monthly installments over a
12-month period to compensate Phoenix for underwriting and start-up
expenses in connection with issuing a Policy. For Multiple Life
Policies, the issue expense charge is $150. For Single Life Policies,
the issue expense charge is $1.50 per $1,000 of face amount, up to a
maximum charge of $600. Phoenix may reduce or eliminate the issue
expense charge for Policies issued under group or sponsored
arrangements. Generally, administrative costs per Policy vary with the
size of the group or sponsored arrangement, its stability as indicated
by its term of existence and certain characteristics of its members,
the purposes for which the Policies are purchased and other factors.
The amounts of any reductions will be considered
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on a case-by-case basis and will reflect the reduced administration
costs expected as a result of sales to a particular group or sponsored
arrangement.
(B) COST OF INSURANCE. In order to calculate the cost of insurance charge,
Phoenix multiplies the applicable cost of insurance rate by the
difference between the death benefit selected (death benefit Option 1
if no selection is made) and the Policy Value. Generally, cost of
insurance rates for Single Life Policies are based on the sex, issue
age, duration and risk class; and for Multiple Life Policies the cost
of insurance rates are based on the sex, Attained Age and risk
class of the Insured(s). However, in certain states and for policies
issued in conjunction with certain qualified plans, cost of insurance
rates are not based on sex. The actual monthly cost of insurance rates
are based on Phoenix's expectations of future mortality experience.
They will not, however, be greater than the guaranteed cost of
insurance rates set forth in the Policy. These guaranteed maximum rates
are equal to 100% of the 1980 Commissioners Standard Ordinary ("CSO")
Mortality Table, with appropriate adjustment for the Insured's risk
classification. Any change in the cost of insurance rates will apply to
all persons of the same sex, insurance age and risk class whose
Policies have been In Force for the same length of time. The risk class
of an Insured may affect the cost of insurance rate. Phoenix currently
places Insureds into a preferred or standard risk class or a risk class
involving a higher mortality risk, depending upon the health of the
Insured as determined by medical information that Phoenix requests. In
an otherwise identical Policy, Insureds in the preferred or standard
risk class will have a lower cost of insurance than those in the risk
class with the higher mortality risk. The standard risk class also is
divided into categories: smokers, nonsmokers and those who have never
smoked. Nonsmokers will generally incur a lower cost of insurance than
similarly situated Insureds who smoke. A blended cost of insurance rate
is applied under Multiple Life Policies.
2. PREMIUM TAXES
Various states and subdivisions impose a tax on premiums received by
insurance companies. Premium taxes vary from state to state. Currently, the
taxes imposed by states on premiums range from 0.75% to 4% of premiums paid.
Moreover, certain municipalities in Louisiana, Kentucky and South Carolina also
impose taxes on premiums paid, in addition to the state taxes imposed. The
premium tax charge represents an amount Phoenix considers necessary to pay all
premium taxes imposed by such states and any subdivisions thereof, and Phoenix
does not expect to derive a profit from this charge. Multiple Life Policies will
be assessed at the tax rate charged by the state in which the Policy is issued
and Single Life Policies will be assessed a charge equal to 2.25% of the
premiums paid. These taxes are deducted from the Issue Premium, and from each
subsequent premium payment.
3. FEDERAL TAX CHARGE
On Single Life Policies, a charge equal to 1.50% of each premium will be
deducted from each premium payment to cover the estimated cost to Phoenix of the
federal income tax treatment of deferred acquisition costs.
4. MORTALITY AND EXPENSE RISK CHARGE
Phoenix will deduct a daily charge from the VUL Account at an annual rate of
0.80% of the average daily net assets of the VUL Account to compensate for
certain risks assumed in connection with the Policy. For Single Life Policies, a
reduced annual rate of .25% will apply after the 15th Policy Year. This charge
is not deducted from the GIA.
The mortality risk assumed by Phoenix is that Insureds may live for a
shorter time than projected because of inaccuracies in that projecting process
and, accordingly, that an aggregate amount of death benefits greater than that
projected will be payable. The expense risk assumed is that expenses incurred in
issuing the Policies may exceed the limits on administrative charges set in the
Policies. If the expenses do not increase to an amount in excess of the limits,
or if the mortality projecting process proves to be accurate, Phoenix may profit
from this charge. Phoenix also assumes risks with respect to other
contingencies, including the incidence of Policy loans, which may cause Phoenix
to incur greater costs than anticipated when designing the Policies. To the
extent Phoenix profits from this charge, it may use those profits for any proper
purpose, including the payment of sales expenses or any other expenses that may
exceed income in a given year.
5. INVESTMENT MANAGEMENT CHARGE
As compensation for investment management services to the Funds, the
Advisers are entitled to fees, payable monthly and based on an annual percentage
of the average aggregate daily net asset values of each Series.
These Fund charges and other expenses are described more fully in the
accompanying Fund prospectuses.
6. OTHER CHARGES
SURRENDER CHARGE
During the first 10 Policy Years, there is a difference between the amount
of Policy Value and the amount of Cash Surrender Value of the Policy. This
difference is the surrender charge, consisting of a contingent deferred sales
charge designed to recover expenses for the distribution of Policies that are
terminated by surrender before distribution expenses have been recouped, and a
contingent deferred issue charge designed to recover expenses for the
administration of Policies that are terminated by surrender before
administrative expenses have been recouped. These are contingent charges because
they are paid only if the Policy is surrendered (or the face amount is reduced
or the Policy lapses) during this period. They are deferred charges because they
are not deducted from premiums.
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During the first 10 Policy Years, the full surrender charge as described
below will apply if the Policyowner either surrenders the Policy for its Cash
Surrender Value or lets the Policy lapse. The applicable surrender charge in any
Policy Month is the full surrender charge minus any surrender charges that have
been previously paid. There is no surrender charge after the 10th Policy Year.
During the first two Policy Years on Single Life Policies and during the first
10 Policy Years on Multiple Life Policies, the maximum surrender charge that a
Policyowner could pay while he or she owns the Policy is equal to either A plus
B (as defined below) or the amount shown in the Policy's Surrender Charge
Schedule, whichever is less. After the first two Policy Years on Single Life
Policies, the maximum surrender charge that a Policyowner could pay is based on
the amount shown in the Policy's Surrender Charge Schedule.
A (the contingent deferred sales charge) is equal to:
1) 28.5% of all premiums paid (up to and including the amount stated in the
Policy's Surrender Charge Schedule, which is calculated according to a
formula contained in a SEC rule); plus
2) 8.5% of all premiums paid in excess of this amount but not greater than
twice this amount; plus
3) 7.5% of all premiums paid in excess of twice this amount.
B (the contingent deferred issue charge) is equal to:
$5 per $1,000 of initial face amount.
As an example, the following illustrates the maximum surrender charge on a
$100,000 Single Life Policy for a male age 35 who has never smoked, who has paid
$3,000 in premium payments, and who surrenders the Policy in the 70th Policy
Month. The Policy's Surrender Charge Schedule would show that the maximum
surrender charge to be paid would be equal to either A plus B (shown below) or
the amount shown in the chart in the Policy (also shown below), whichever is
less:
Example: If this Policyowner surrenders his Policy in the 70th Policy Month
his surrender charge will be $1,186.78, as given in the table.
Example: If this Policyowner surrenders his Policy in the first two years he
may be eligible to receive a refund of a portion of the surrender charge,
depending on the amount of premium paid, or in other words his surrender charge
may be reduced. The surrender charge in the first 2 years would be equal to the
lesser of the amount in the surrender charge table and the sum of the following:
A. 1) 28.5% of premiums paid up to $1,076.72, plus
2) 8.5% of premiums paid in excess of $1,076.72 but not greater than
$2,153.43, plus
3) 7.5% of premiums paid in excess of $2,153.43,
B. Plus $500.
If this Policyowner surrendered his Policy in the 2nd year after paying
$3,000 of premiums his surrender charge would be the lesser of $1,307.54 from
the table, and $961.88. In this case, the Policyowner would pay less surrender
charge if he surrenders his Policy in the first 2 Policy Years.
SURRENDER CHARGE TABLE
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POLICY SURRENDER POLICY SURRENDER POLICY SURRENDER
MONTH CHARGE MONTH CHARGE MONTH CHARGE
1-60 $1307.54 80 $1066.03 100 $727.09
61 1295.46 81 1053.95 101 690.65
62 1283.39 82 1041.88 102 654.22
63 1271.31 83 1029.80 103 617.78
64 1259.24 84 1017.73 104 581.35
65 1247.16 85 1005.65 105 544.91
66 1235.08 86 993.58 106 508.48
67 1223.01 87 981.50 107 472.05
68 1210.93 88 969.43 108 435.61
69 1198.86 89 957.35 109 399.18
70 1186.78 90 945.28 110 362.74
71 1174.71 91 933.20 111 326.31
72 1162.63 92 921.13 112 289.97
73 1150.56 93 909.05 113 253.44
74 1138.48 94 896.97 114 217.01
75 1126.41 95 884.90 115 180.57
76 1114.33 96 872.82 116 144.14
77 1102.26 97 836.39 117 107.70
78 1090.18 98 799.95 118 71.27
79 1078.10 99 763.52 119 34.83
120 .00
Phoenix may reduce the surrender charge for Policies issued under group or
sponsored arrangements. The amount of reduction will be considered on a
case-by-case basis and will reflect the reduced costs to Phoenix expected as a
result of sales to a particular group or sponsored arrangement.
PARTIAL SURRENDER FEE
A fee equal to the lesser of $25 or 2% of the amount withdrawn from the
Policy is deducted from the Policy Value upon a partial surrender of the Policy
to recover the actual costs of processing the partial surrender request. The
assessment to each Subaccount or to the GIA will be made in the same manner as
provided for the partial surrender amount paid. That is, that the Policy's share
in the value of each Subaccount or the GIA will be reduced based on the
allocation made at the time of the partial surrender. If no allocation request
is made, the assessment to each Subaccount and to the GIA will be made in the
same manner as provided for monthly deductions.
PARTIAL SURRENDER CHARGE
A charge as described below is deducted from the Policy Value upon a partial
surrender of the Policy. The charge is equal to a pro rata portion of the
applicable surrender charge that would apply to a full surrender, determined by
multiplying the applicable surrender charge by a fraction (equal to the partial
surrender amount payable divided by the result of subtracting the applicable
surrender charge from the Policy Value). This amount is assessed against the
Subaccounts or the GIA in the same manner as provided for with respect to the
partial surrender amount paid.
A partial surrender charge also is deducted from Policy Value upon a
decrease in face amount. The charge is equal to the applicable surrender charge
multiplied by a fraction (equal to the decrease in face amount divided by the
face amount of the Policy prior to the decrease).
TAXES
Currently no charge is made to the VUL Account for federal income taxes that
may be attributable to the VUL Account. Phoenix
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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 Commission as a result of which disposal of
securities is not reasonably practicable or it is not reasonably practicable to
determine the value of the VUL Account's net assets. Transfers also may be
postponed under these circumstances.
PAYMENT BY CHECK
Payments under the Policy of any amounts derived from premiums paid by check
may be delayed until such time as the check has cleared the Policyowner's bank.
THE CONTRACT
The Policy and attached copy of the application are the entire contract.
Only statements in the application can be used to void the Policy. The
statements are considered representations and not warranties. Only an executive
officer of Phoenix can agree to change or waive any provisions of the Policy.
SUICIDE
If the Insured commits suicide within two years after the Policy's Date of
Issue, Phoenix will pay only the Policy Value adjusted by the addition of any
monthly deductions and other fees and charges made under the Policy and the
subtraction of any Debt owed to Phoenix under the Policy.
INCONTESTABILITY
Phoenix cannot contest this Policy or any attached rider after it has been
In Force during the lifetime of the Insured for two years from the Policy Date.
CHANGE OF OWNER OR BENEFICIARY
The Beneficiary, as named in the Policy application or subsequently changed,
will receive the Policy benefits at the Insured's death. If the named
Beneficiary dies before the Insured, the contingent Beneficiary, if named,
becomes the Beneficiary. If no Beneficiary survives the Policyowner, the
benefits payable at the Insured's death will be paid to the Policyowner's
estate.
As long as the Policy is In Force, the Policyowner and the Beneficiary may
be changed by Written Request, satisfactory to Phoenix. A change in Beneficiary
will take effect as of the date the notice is signed, whether or not the Insured
is living when the notice is received by Phoenix. Phoenix will not, however, be
liable for any payment made or action taken before receipt of the notice.
ASSIGNMENT
The Policy may be assigned. Phoenix will not be bound by the assignment
until a written copy has been received and will not be liable with respect to
any payment made prior to receipt. Phoenix assumes no responsibility for
determining whether an assignment is valid.
MISSTATEMENT OF AGE OR SEX
If the age or sex of the Insured has been misstated, the death benefit will
be adjusted based on what the cost of insurance charge for the most recent
monthly deduction would have purchased based on the correct age and sex.
SURPLUS
Policyowners may share in divisible surplus of Phoenix to the extent
determined annually by the Phoenix Board of Directors. However, it is not
currently anticipated that the Board will authorize these payments since
Policyowners will be participating directly in investment results.
PAYMENT OF PROCEEDS
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SURRENDER AND DEATH BENEFIT PROCEEDS
Death benefit proceeds and the proceeds of full or partial surrenders will
be processed at Unit values next computed after Phoenix receives the request for
surrender or due proof of death, provided such request is complete and in good
order. Payment of surrender or death proceeds usually will be made in one lump
sum within seven days, unless another payment option has been elected. Payment
of the death proceeds, however, may be delayed if the claim for payment of the
death proceeds needs to be investigated; e.g., to ensure payment of the proper
amount to the proper payee. Any such delay will not be beyond that reasonably
necessary to investigate such claims consistent with insurance practices
customary in the life insurance industry. Under a Policy covering multiple
lives, the death proceeds will be paid upon the first death under the Policy. In
addition, under certain conditions, in the event of the terminal illness of the
Insured, an accelerated payment of up to 75% of the Policy's Death Benefit (up
to maximum of $250,000), is available under the Living Benefits Rider. The
minimum face amount remaining after any such accelerated benefit payment is
$10,000.
While the Insured is living, the Policyowner may elect a payment option for
payment of the death proceeds to the Beneficiary. The Policyowner may revoke or
change a prior election, unless such right has been waived. The Beneficiary may
make or change an election prior to payment of the death proceeds, unless the
Policyowner has made an election which does not permit such further election or
changes by the Beneficiary.
A written form satisfactory to Phoenix is required to elect, change or
revoke a payment option.
The minimum amount of surrender or death proceeds that may be applied under
any option is $1,000.
If the Policy is assigned as collateral security, Phoenix will pay any
amount due the assignee in one lump sum. Any remaining proceeds will remain
under the option elected.
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<PAGE>
PAYMENT OPTIONS
All or part of the surrender or death proceeds of a Policy may be applied
under one or more of the following payment options or such other payment options
or alternative versions of the options listed as Phoenix may choose to make
available in the future.
OPTION 1--LUMP SUM.
Payment in one lump sum.
OPTION 2--LEFT TO EARN INTEREST.
A payment of interest during the payee's lifetime on the amount payable as a
principal sum. Interest rates are guaranteed to be at least 3% per year.
OPTION 3--PAYMENT FOR A SPECIFIC PERIOD.
Equal income installments are paid for a specified period of years whether
the payee lives or dies. The first payment will be on the date of settlement.
The assumed interest rate on the unpaid balance is guaranteed not to be less
than 3% per year.
OPTION 4--LIFE ANNUITY WITH SPECIFIED PERIOD CERTAIN.
Equal installments are paid until the later of: (A) The death of the payee;
(B) The end of the period certain. The first payment will be on the date of
settlement. The period certain must be chosen at the time this option is
elected. The periods certain that may be chosen are as follows: (A) Ten years;
(B) Twenty years; (C) Until the installments paid refund the amount applied
under this option; and if the payee is not living when the final payment falls
due, that payment will be limited to the amount which needs to be added to the
payments already made to equal the amount applied under this option. If, for the
age of the payee, a period certain is chosen that is shorter than another period
certain paying the same installment amount, Phoenix will deem the longer period
certain as having been elected. Any life annuity provided under Option 4 is
calculated using an interest rate guaranteed to be no less than 3 3/8% per year,
except that any life annuity providing a period certain of 20 years or more is
calculated using an interest rate guaranteed to be no less than 3 1/4% per year.
OPTION 5--LIFE ANNUITY.
Equal installments are paid only during the lifetime of the payee. The first
payment will be on the date of settlement. Any life annuity as may be provided
under Option 5 is calculated using an interest rate guaranteed to be no less
than 3 1/2% per year.
OPTION 6--PAYMENTS OF A SPECIFIED AMOUNT.
Equal installments of a specified amount, out of the principal sum and
interest on that sum, are paid until the principal sum remaining is less than
the amount of the installment. When that happens, the principal sum remaining
with accrued interest will be paid as a final payment. The first payment will be
on the date of settlement. The payments will include interest on the principal
sum remaining at a rate guaranteed to be at least equal to 3% per year. This
interest will be credited at the end of each year. If the amount of interest
credited at the end of the year exceeds the income payments made in the last 12
months, that excess will be paid in one sum on the date credited.
OPTION 7--JOINT SURVIVORSHIP ANNUITY WITH 10 YEAR PERIOD CERTAIN.
The first payment will be on the date of settlement. Equal income
installments are paid until the latest of: (A) the end of the 10-year period
certain; (B) the death of the Insured; (C) the death of the other named
annuitant. The other annuitant must be named at the time this option is elected
and cannot later be changed. The other annuitant must have an Attained Age of at
least 40. Any joint survivorship annuity as may be provided under this option is
calculated using an interest rate guaranteed to be no less than 3 3/8% per year.
For additional information concerning the above payment options, see the
Policy.
FEDERAL TAX CONSIDERATIONS
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INTRODUCTION
The ultimate effect of federal income taxes on values under the VUL Account
and on the economic benefit to the Policyowner or Beneficiary depends on
Phoenix's tax status and upon the tax status of the individual concerned. The
discussion contained herein is general in nature and is not intended as tax
advice. For complete information on federal and state tax considerations, a
qualified tax adviser should be consulted. No attempt is made to consider any
estate and inheritance taxes, or any state, local or other tax laws. Because the
discussion herein is based upon Phoenix's understanding of federal income tax
laws as they are currently interpreted, Phoenix cannot guarantee the tax status
of any Policy. No representation is made regarding the likelihood of
continuation of current federal income tax laws, Treasury regulations or of the
current interpretations by the Internal Revenue Service (the "IRS"). Phoenix
reserves the right to make changes to the Policy in order to assure that it will
continue to qualify as a life insurance contract for federal income tax
purposes.
PHOENIX'S TAX STATUS
Phoenix is taxed as a life insurance company under the Internal Revenue Code
of 1986 (the "Code"), as amended. 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
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<PAGE>
should not be deemed to be in constructive receipt of the Cash Value,
including increments thereon. See, however, the sections below on possible
taxation of amounts received under the Policy, via full surrender, partial
surrender or loan. In addition, a benefit paid under a Living Benefit Rider may
be taxable as income in the year of receipt.
Code Section 7702 imposes certain conditions with respect to premiums
received under a Policy. Phoenix intends to monitor the premiums to assure
compliance with such conditions. However, in the event that the premium
limitation is exceeded during the year, Phoenix may return the excess premium,
with interest, to the Policyowner within 60 days after the end of the Policy
Year, and maintain the qualification of the Policy as life insurance for federal
income tax purposes.
FULL SURRENDER. Upon full surrender of a Policy for its Cash Value, the
excess, if any, of the Cash Value (unreduced by any outstanding indebtedness)
over the premiums paid will be treated as ordinary income for federal income tax
purposes. The full surrender of a Policy which is a modified endowment contract
may result in the imposition of an additional 10% tax on any income received.
PARTIAL SURRENDER. If the Policy is a modified endowment contract, partial
surrenders are fully taxable to the extent of income in the Policy and are
possibly subject to an additional 10% tax. See the discussion on modified
endowment contracts below. If the Policy is not a modified endowment contract,
partial surrenders still may be taxable, as follows. Code Section 7702(f)(7)
provides that where a reduction in death benefits occurs during the first 15
years after a Policy is issued and there is a cash distribution associated with
that reduction, the Policyowner may be taxed on all or a part of the amount
distributed. A reduction in death benefits may result from a partial surrender.
After 15 years, the proceeds will not be subject to tax, except to the extent
such proceeds exceed the total amount of premiums paid but not previously
recovered. Phoenix suggests you consult with your tax adviser in advance of a
proposed decrease in death benefits or a partial surrender as to the portion, if
any, which would be subject to tax, and in addition as to the impact such
partial surrender might have under the new rules affecting modified endowment
contracts. The benefit payment under the Living Benefits Rider is not considered
a partial surrender.
LOANS. Phoenix believes that any loan received under a Policy will be
treated as indebtedness of the Policyowner. If the Policy is a modified
endowment contract, loans are fully taxable to the extent of income in the
Policy and are possibly subject to an additional 10% tax. See the discussion on
modified endowment contracts below. If the Policy is not a modified endowment
contract, Phoenix believes that no part of any loan under a Policy will
constitute income to the Policyowner.
The deductibility by the Policyowner of loan interest under a Policy may be
limited under Code Section 264, depending on the circumstances. Any Policyowner
intending to fund premium payments through borrowing should consult a tax
adviser with respect to the tax consequences thereof. Under the "personal"
interest limitation provisions of the Code, interest on Policy loans used for
personal purposes is not tax deductible. Other rules may apply to allow all or
part of the interest expense as a deduction if the loan proceeds are used for
"trade or business" or "investment" purposes. See your tax adviser for further
guidance.
BUSINESS-OWNED POLICIES
If the Policy is owned by a business or a corporation, the Code may impose
additional restrictions. The Code limits the interest deduction on
business-owned Policy loans and may impose tax upon the inside buildup 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,
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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 the Policyowner.
QUALIFIED PLANS
A Policy may be used in conjunction with certain qualified plans. Since the
rules governing such use are complex, a purchaser should not use the Policy in
conjunction with a qualified plan until he has consulted a competent pension
consultant or tax adviser.
DIVERSIFICATION STANDARDS
To comply with the Diversification Regulations under Code Section 817(h),
("Diversification Regulations") each Series of the Funds is required to
diversify its investments. The Diversification Regulations generally require
that on the last day of each quarter of a calendar year no more than 55% of the
value of 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 Funds will
be tested for compliance with the percentage limitations. For purposes of these
diversification rules, all securities of the same issuer are treated as a single
investment, but each United States government agency or instrumentality is
treated as a separate issuer.
The general diversification requirements are modified if any of the assets
of the VUL Account are direct obligations of the Treasury. In this case, there
is no limit on the investment that may be made in Treasury securities, and for
purposes of determining whether assets other than Treasury securities are
adequately diversified, the generally applicable percentage limitations are
increased based on the value of the VUL Account's investment in Treasury
securities. Notwithstanding this modification of the general diversification
requirements, the portfolios of the Funds will be structured to comply with the
general diversification standards because they serve as an investment vehicle
for certain variable annuity contracts which must comply with these standards.
In connection with the issuance of the Diversification Regulations, the
Treasury announced that such regulations do not provide guidance concerning the
extent to which Policyowners may direct their investments to particular
divisions of a separate account. It is possible that a revenue ruling or other
form of administrative pronouncement in this regard may be issued in the near
future. It is not clear, at this time, what such a revenue ruling or other
pronouncement will provide. It is possible that the Policy may need to be
modified to comply with such future Treasury announcements. For these reasons,
Phoenix reserves the right to modify the Policy, as necessary, to prevent the
Policyowner from being considered the Owner of the assets of the VUL Account.
Phoenix intends to comply with the Diversification Regulations to assure
that the Policies continue to qualify as a life insurance contract for federal
income tax purposes.
CHANGE OF OWNERSHIP OR INSURED OR ASSIGNMENT
Changing the Policyowner or the Insured or an exchange or assignment of the
Policy may have tax consequences depending on the circumstances. Code Section
1035 provides that a life insurance Policy can be exchanged for another life
insurance contract, without recognition of gain or loss, assuming that no money
or other property is received in the exchange, and that the policies relate to
the same Insured. If the surrendered Policy is subject to a Policy loan, this
may be treated as the receipt of money on the exchange. Phoenix recommends that
any person contemplating such actions seek the advice of a qualified tax
consultant.
OTHER TAXES
Federal estate tax, state and local estate, inheritance and other tax
consequences of ownership or receipt of Policy proceeds depend on the
circumstances of each Policyowner or Beneficiary. Phoenix does not make any
representations or guarantees regarding the tax consequences of any Policy with
respect to these types of taxes.
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VOTING RIGHTS
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THE FUNDS
Phoenix will vote the Funds' shares held by the Subaccounts of the VUL
Account at any regular and special meetings of shareholders of the Funds. To the
extent required by law, such voting will be in accordance with instructions
received from the Policyowner. However, if the 1940 Act or any regulation
thereunder should be amended or if the present interpretation thereof should
change, and as a result Phoenix determines that it is permitted to vote the
Funds' shares at its own discretion, it may elect to do so.
The number of votes that a Policyowner has the right to cast will be
determined by applying the Policyowner's percentage interest in a Subaccount to
the total number of votes attributable to the Subaccount. In determining the
number of votes, fractional shares will be recognized.
Funds' shares held in a Subaccount for which no timely instructions are
received, and Funds shares which are not otherwise attributable to Policyowners,
will be voted by Phoenix in proportion to the voting instructions that are
received with respect to all Policies participating in that Subaccount. Voting
instructions to abstain on any item to be voted upon will be applied to reduce
the votes eligible to be cast by Phoenix.
Each Policyowner will receive proxy materials, reports and other materials
relating to the Funds.
Phoenix may, when required by state insurance regulatory authorities,
disregard voting instructions if the instructions require that the shares be
voted so as to cause a change in the 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 Phoenix determined that the change would have an adverse effect
on the General Account because the proposed investment policy for a portfolio
may result in overly speculative or unsound investments. In the event Phoenix
does disregard voting instructions, a summary of that action and the reasons for
such action will be included in the next periodic report to Policyowners.
PHOENIX
A Policyowner (or the payee entitled to payment under a payment option if a
different person) will have the right to vote at annual meetings of all Phoenix
Policyholders for the election of members of the Board of Directors of Phoenix
and on other corporate matters, if any, where a Policyholder's vote is taken. At
meetings of all of the Phoenix Policyholders, a Policyholder (or payee) may cast
only one vote as the holder of a Policy, irrespective of Policy Value or the
number of the Policies held.
THE DIRECTORS AND EXECUTIVE OFFICERS OF PHOENIX
- -------------------------------------------------------------------------------
Phoenix is managed by its Board of Directors, the members of which are
elected by its Policyholders, including Owners of the Policies. See "Voting
Rights."
The following are the Directors and Executive Officers of Phoenix:
DIRECTORS PRINCIPAL OCCUPATION
Sal H. Alfiero Chairman and Chief Executive
Officer, Mark IV Industries, Inc.
Amherst, New York
J. Carter Bacot Chairman and Chief Executive
Officer, The Bank of New York
New York, New York
Carol H. Baldi President, Carol H. Baldi, Inc.
New York, New York
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
23
<PAGE>
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
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
- -------------------------------------------------------------------------------
The assets of the VUL Account are held by Phoenix. The assets of the VUL
Account are kept physically segregated and held separate and apart from the
General Account of Phoenix. Phoenix maintains records of all purchases and
redemptions of shares of the Fund.
SALES OF POLICIES
- -------------------------------------------------------------------------------
Policies may be purchased from registered representatives of W.S. Griffith &
Co., Inc. ("W.S. Griffith"), a corporation formed under the laws of the state of
New York on August 7, 1970, licensed to sell Phoenix insurance policies as well
as policies, annuity contracts and funds of companies affiliated with Phoenix.
W. S. Griffith, an indirect subsidiary of Phoenix, is registered as a
broker-dealer with the SEC under the Securities Exchange Act of 1934 ("1934
Act") and 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 Investment Partners, Ltd. (PXP), in which Phoenix owns a
majority interest. 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
24
<PAGE>
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
- -------------------------------------------------------------------------------
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 and assessment of all business
systems, including those of its subsidiaries, was conducted. Phoenix has
identified and is now actively pursuing a number of strategies to address the
issue, including:
- upgrading systems with compliant versions;
- developing or acquiring new systems to replace those that are obsolete;
- and remediating existing systems by converting code or hardware.
Based on current assessments, Phoenix expects to have its computer systems
compliant by the end of 1998, with testing to continue through 1999. In
addition, Phoenix is examining the status of its third-party vendors, obtaining
assurances that their software and hardware products will be century compliant
by 1999.
FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
The consolidated financial statements of Phoenix 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 VARIABLE
UNIVERSAL LIFE ACCOUNT
FINANCIAL STATEMENTS
DECEMBER 31, 1997
26
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997
<TABLE>
<CAPTION>
Multi-Sector
Money Market Growth Fixed Income
Sub-Account Sub-Account Sub-Account
---------------- ----------------- ----------------
<S> <C> <C> <C>
Assets
Investments at cost ........................................... $ 16,637,078 $ 223,382,611 $ 16,173,563
============ ============= ============
Investment in The Phoenix Edge Series Fund, at market ......... $ 16,637,078 $ 236,855,460 $ 16,582,895
------------ ------------- ------------
Total assets ................................................. 16,637,078 236,855,460 16,582,895
Liabilities
Accrued expenses to related party ............................. 9,797 156,810 10,808
------------ ------------- ------------
Net assets ..................................................... $ 16,627,281 $ 236,698,650 $ 16,572,087
============ ============= ============
Accumulation units outstanding ................................. 11,538,596 56,320,835 7,200,511
============ ============= ============
Unit value ..................................................... $ 1.441014 $ 4.202684 $ 2.301515
============ ============= ============
</TABLE>
<TABLE>
<CAPTION>
Strategic
Allocation International Balanced
Sub-Account Sub-Account Sub-Account
---------------- --------------- ----------------
<S> <C> <C> <C>
Assets
Investments at cost ........................................... $ 35,170,967 $ 38,821,949 $ 19,629,676
============ ============ ============
Investment in The Phoenix Edge Series Fund, at market ......... $ 36,045,635 $ 43,146,110 $ 20,745,874
------------ ------------ ------------
Total assets ................................................. 36,045,635 43,146,110 20,745,874
Liabilities
Accrued expenses to related party ............................. 24,077 28,378 13,791
------------ ------------ ------------
Net assets ..................................................... $ 36,021,558 $ 43,117,732 $ 20,732,083
============ ============ ============
Accumulation units outstanding ................................. 12,947,264 23,810,180 11,686,186
============ ============ ============
Unit value ..................................................... $ 2.782175 $ 1.810895 $ 1.774067
============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Aberdeen
Real Estate Strategic Theme New Asia
Sub-Account Sub-Account Sub-Account
--------------- ----------------- ---------------
<S> <C> <C> <C>
Assets
Investments at cost ........................................... $ 3,703,960 $ 4,532,000 $ 1,559,523
=========== =========== ===========
Investment in The Phoenix Edge Series Fund, at market ......... $ 4,148,357 $ 4,473,952 $ 1,049,925
----------- ----------- -----------
Total assets ................................................. 4,148,357 4,473,952 1,049,925
Liabilities
Accrued expenses to related party ............................. 2,644 2,907 695
----------- ----------- -----------
Net assets ..................................................... $ 4,145,713 $ 4,471,045 $ 1,049,230
=========== =========== ===========
Accumulation units outstanding ................................. 2,623,760 3,845,161 1,565,906
=========== =========== ===========
Unit value ..................................................... $ 1.580065 $ 1.162772 $ 0.670046
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Wanger
Enhanced International Wanger U.S.
Index Small Cap Small Cap
Sub-Account Sub-Account Sub-Account
--------------- --------------- ----------------
<S> <C> <C> <C>
Assets
Investments at cost ........................................... $ 1,911,997 $ 6,984,952 $ 14,388,061
=========== =========== ============
Investment in the Phoenix Edge Series Fund, at market ......... $ 1,952,250 -- --
Investment in Wanger Advisors Trust, at market ................ -- $ 6,538,176 $ 16,357,922
----------- ----------- ------------
Total assets ................................................. 1,952,250 6,538,176 16,357,922
Liabilities
Accrued expenses to related party ............................. 1,242 4,304 10,425
----------- ----------- ------------
Net assets ..................................................... $ 1,951,008 $ 6,533,872 $ 16,347,497
=========== =========== ============
Accumulation units outstanding ................................. 1,830,791 6,507,413 12,260,968
=========== =========== ============
Unit value ..................................................... $ 1.065664 $ 1.004066 $ 1.333296
=========== =========== ============
</TABLE>
See Notes to Financial Statements
27
<PAGE>
STATEMENT OF OPERATIONS
For the period ended December 31, 1997
<TABLE>
<CAPTION>
Multi-Sector
Money Market Growth Fixed Income
Sub-Account Sub-Account Sub-Account
-------------- --------------- -------------
<S> <C> <C> <C>
Investment income
Distributions ............................................... $787,128 $ 1,274,518 $1,024,853
Expenses
Mortality and expense risk charges .......................... 124,354 1,639,929 110,127
-------- ----------- ----------
Net investment income (loss) ................................. 662,774 (365,411) 914,726
-------- ----------- ----------
Net realized gain (loss) from share transactions ............. 34 (13,683) 4,696
Net realized gain distribution from Fund ..................... -- 36,351,738 401,988
Net unrealized appreciation on investment .................... -- 909,243 18,289
-------- ----------- ----------
Net gain on investments ...................................... 34 37,247,298 424,973
-------- ----------- ----------
Net increase in net assets resulting from operations ......... $662,808 $36,881,887 $1,339,699
======== =========== ==========
</TABLE>
<TABLE>
<CAPTION>
Strategic
Allocation International Balanced
Sub-Account Sub-Account Sub-Account
------------- --------------- ------------
<S> <C> <C> <C>
Investment income
Distributions ................................................... $ 681,837 $ 526,957 $ 561,561
Expenses
Mortality and expense risk charges .............................. 249,583 315,851 145,865
---------- ---------- ----------
Net investment income ............................................ 432,254 211,106 415,696
---------- ---------- ----------
Net realized gain (loss) from share transactions ................. 16,230 (38,944) 7,612
Net realized gain distribution from Fund ......................... 4,395,531 4,047,584 2,259,915
Net unrealized appreciation (depreciation) on investment ......... 604,211 (307,551) 120,786
---------- ---------- ----------
Net gain on investments .......................................... 5,015,972 3,701,089 2,388,313
---------- ---------- ----------
Net increase in net assets resulting from operations ............. $5,448,226 $3,912,195 $2,804,009
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Aberdeen
Real Estate Strategic Theme New Asia
Sub-Account Sub-Account Sub-Account
------------- ----------------- --------------
<S> <C> <C> <C>
Investment income
Distributions .......................................................... $ 91,995 $ 13,601 $ 46,168
Expenses
Mortality and expense risk charges ..................................... 20,395 26,037 11,151
-------- --------- ----------
Net investment income (loss) ............................................ 71,600 (12,436) 35,017
-------- --------- ----------
Net realized gain (loss) from share transactions ........................ 438 2,000 (13,900)
Net realized gain distribution from Fund ................................ 136,883 515,108 791
Net unrealized appreciation (depreciation) on investment ................ 332,563 (66,310) (502,645)
-------- --------- ----------
Net gain (loss) on investments .......................................... 469,884 450,798 (515,754)
-------- --------- ----------
Net increase (decrease) in net assets resulting from operations ......... $541,484 $ 438,362 $ (480,737)
======== ========= ==========
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Wanger Wanger
Enhanced International U.S.
Index Small Cap Small Cap
Sub-Account(1) Sub-Account Sub-Account
-------------- -------- ----------
Investment income
Distributions .......................................................... $ 9,326 $ 68,447 $ 103,408
Expenses
Mortality and expense risk charges ..................................... 3,926 35,993 67,198
-------------- --------- ----------
Net investment income ................................................... 5,400 32,454 36,210
-------------- --------- ----------
Net realized loss from share transactions ............................... (334) (3,142) (13,408)
Net realized gain distribution from Fund ................................ 8,778 -- --
Net unrealized appreciation (depreciation) on investment ................ 40,253 (450,637) 1,960,796
-------------- --------- ----------
Net gain (loss) on investments .......................................... 48,697 (453,779) 1,947,388
-------------- --------- ----------
Net increase (decrease) in net assets resulting from operations ......... $ 54,097 $(421,325) $1,983,598
============== ========= ==========
(1) From inception July 18, 1997 to December 31, 1997
</TABLE>
See Notes to Financial Statements
28
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
For the period ended December 31, 1997
<TABLE>
<CAPTION>
Multi-Sector
Money Market Growth Fixed Income
Sub-Account Sub-Account Sub-Account
---------------- ---------------- ---------------
<S> <C> <C> <C>
From operations
Net investment income (loss) ............................................ $ 662,774 $ (365,411) $ 914,726
Net realized gain ....................................................... 34 36,338,055 406,684
Net unrealized appreciation ............................................. -- 909,243 18,289
------------- ------------- ------------
Net increase in net assets resulting from operations .................... 662,808 36,881,887 1,339,699
------------- ------------- ------------
From accumulation unit transactions
Participant deposits .................................................... 29,753,469 51,373,829 3,839,754
Participant transfers ................................................... (24,739,794) 461,474 1,758,903
Participant withdrawals ................................................. (4,583,895) (24,768,747) (1,594,349)
------------- ------------- ------------
Net increase in net assets resulting from participant transactions ...... 429,780 27,066,556 4,004,308
------------- ------------- ------------
Net increase in net assets .............................................. 1,092,588 63,948,443 5,344,007
Net assets
Beginning of period ..................................................... 15,534,693 172,750,207 11,228,080
------------- ------------- ------------
End of period ........................................................... $ 16,627,281 $ 236,698,650 $ 16,572,087
============= ============= ============
</TABLE>
<TABLE>
<CAPTION>
Strategic
Allocation International Balanced
Sub-Account Sub-Account Sub-Account
--------------- --------------- ---------------
<S> <C> <C> <C>
From operations
Net investment income ................................................... $ 432,254 $ 211,106 $ 415,696
Net realized gain ....................................................... 4,411,761 4,008,640 2,267,527
Net unrealized appreciation (depreciation) .............................. 604,211 (307,551) 120,786
------------ ------------ ------------
Net increase in net assets resulting from operations .................... 5,448,226 3,912,195 2,804,009
------------ ------------ ------------
From accumulation unit transactions
Participant deposits .................................................... 6,156,264 9,403,556 3,516,448
Participant transfers ................................................... 1,805,561 284,097 397,233
Participant withdrawals ................................................. (3,655,616) (4,537,485) (2,204,100)
------------ ------------ ------------
Net increase in net assets resulting from participant transactions ...... 4,306,209 5,150,168 1,709,581
------------ ------------ ------------
Net increase in net assets .............................................. 9,754,435 9,062,363 4,513,590
Net assets
Beginning of period ..................................................... 26,267,123 34,055,369 16,218,493
------------ ------------ ------------
End of period ........................................................... $ 36,021,558 $ 43,117,732 $ 20,732,083
============ ============ ============
</TABLE>
See Notes to Financial Statements
29
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
For the period ended December 31, 1997
(Continued)
<TABLE>
<CAPTION>
Aberdeen
Real Estate Strategic Theme New Asia
Sub-Account Sub-Account Sub-Account
------------- ----------------- --------------
<S> <C> <C> <C>
From operations
Net investment income (loss) ............................................ $ 71,600 $ (12,436) $ 35,017
Net realized gain (loss) ................................................ 137,321 517,108 (13,109)
Net unrealized appreciation (depreciation) .............................. 332,563 (66,310) (502,645)
---------- ---------- ----------
Net increase (decrease) in net assets resulting from operations ......... 541,484 438,362 (480,737)
---------- ---------- ----------
From accumulation unit transactions
Participant deposits .................................................... 1,089,983 1,476,759 522,055
Participant transfers ................................................... 1,984,226 1,197,938 (774,160)
Participant withdrawals ................................................. (357,873) (447,958) (159,479)
---------- ---------- ----------
Net increase (decrease) in net assets resulting from participant
transactions ........................................................... 2,716,336 2,226,739 (411,584)
---------- ---------- ----------
Net increase (decrease) in net assets ................................... 3,257,820 2,665,101 (892,321)
Net assets
Beginning of period ..................................................... 887,893 1,805,944 1,941,551
---------- ---------- ----------
End of period ........................................................... $4,145,713 $4,471,045 $1,049,230
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Wanger
Enhanced International Wanger U.S.
Index Small Cap Small Cap
Sub-Account(1) Sub-Account Sub-Account
---------------- --------------- --------------
<S> <C> <C> <C>
From operations
Net investment income ................................................... $ 5,400 $ 32,454 $ 36,210
Net realized gain (loss) ................................................ 8,444 (3,142) (13,408)
Net unrealized appreciation (depreciation) .............................. 40,253 (450,637) 1,960,796
---------- ---------- ------------
Net increase (decrease) in net assets resulting from operations ......... 54,097 (421,325) 1,983,598
---------- ---------- ------------
From accumulation unit transactions
Participant deposits .................................................... 334,421 2,372,417 3,760,805
Participant transfers ................................................... 1,632,282 4,882,238 11,222,509
Participant withdrawals ................................................. (69,792) (595,864) (1,086,412)
---------- ---------- ------------
Net increase in net assets resulting from participant transactions ...... 1,896,911 6,658,791 13,896,902
---------- ---------- ------------
Net increase in net assets .............................................. 1,951,008 6,237,466 15,880,500
Net assets
Beginning of period ..................................................... -- 296,406 466,997
---------- ---------- ------------
End of period ........................................................... $1,951,008 $6,533,872 $ 16,347,497
========== ========== ============
(1) From inception July 18, 1997 to December 31, 1997
</TABLE>
See Notes to Financial Statements
30
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
For the period ended December 31, 1996
<TABLE>
<CAPTION>
Multi-Sector
Money Market Growth Fixed Income
Sub-Account Sub-Account Sub-Account
---------------- ---------------- ---------------
<S> <C> <C> <C>
From operations
Net investment income ................................................... $ 548,378 $ 281,274 $ 593,496
Net realized gain ....................................................... -- 11,420,506 326,876
Net unrealized appreciation ............................................. -- 4,791,630 43,393
------------- ------------- ------------
Net increase in net assets resulting from operations .................... 548,378 16,493,410 963,765
------------- ------------- ------------
From accumulation unit transactions
Participant deposits .................................................... 26,004,635 47,202,324 2,811,259
Participant transfers ................................................... (21,268,222) 10,438,285 1,823,625
Participant withdrawals ................................................. (3,701,639) (19,333,192) (1,071,344)
------------- ------------- ------------
Net increase in net assets resulting from participant transactions ...... 1,034,774 38,307,417 3,563,540
------------- ------------- ------------
Net increase in net assets .............................................. 1,583,152 54,800,827 4,527,305
Net assets
Beginning of period ..................................................... 13,951,541 117,949,380 6,700,775
------------- ------------- ------------
End of period ........................................................... $ 15,534,693 $ 172,750,207 $ 11,228,080
============= ============= ============
</TABLE>
<TABLE>
<CAPTION>
Strategic Allocation International Balanced
Sub-Account Sub-Account Sub-Account
---------------------- --------------- ---------------
<S> <C> <C> <C>
From operations
Net investment income ................................................... $ 324,553 $ 245,322 $ 296,076
Net realized gain ....................................................... 1,622,713 747,494 1,394,172
Net unrealized appreciation (depreciation) .............................. (91,227) 3,401,467 (304,864)
------------ ------------ ------------
Net increase in net assets resulting from operations .................... 1,856,039 4,394,283 1,385,384
------------ ------------ ------------
From accumulation unit transactions
Participant deposits .................................................... 6,031,095 8,480,853 3,636,746
Participant transfers ................................................... 1,002,380 3,847,285 (651,439)
Participant withdrawals ................................................. (2,871,670) (3,414,225) (1,868,673)
------------ ------------ ------------
Net increase in net assets resulting from participant transactions ...... 4,161,805 8,913,913 1,116,634
------------ ------------ ------------
Net increase in net assets .............................................. 6,017,844 13,308,196 2,502,018
Net assets
Beginning of period ..................................................... 20,249,279 20,747,173 13,716,475
------------ ------------ ------------
End of period ........................................................... $ 26,267,123 $ 34,055,369 $ 16,218,493
============ ============ ============
</TABLE>
See Notes to Financial Statements
31
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
For the period ended December 31, 1996
(Continued)
<TABLE>
<CAPTION>
Aberdeen
Real Estate Strategic Theme New Asia
Sub-Account(1) Sub-Account(1) Sub-Account(2)
---------------- ----------------- ---------------
<S> <C> <C> <C>
From operations
Net investment income ................................................... $ 8,506 $ 910 $ 7,082
Net realized gain ....................................................... 22,646 1,002 919
Net unrealized appreciation (depreciation) .............................. 111,837 8,263 (6,953)
--------- ---------- ----------
Net increase in net assets resulting from operations .................... 142,989 10,175 1,048
--------- ---------- ----------
From accumulation unit transactions
Participant deposits .................................................... 114,179 507,159 137,347
Participant transfers ................................................... 648,017 1,412,288 1,825,934
Participant withdrawals ................................................. (17,292) (123,678) (22,778)
--------- ---------- ----------
Net increase in net assets resulting from participant transactions ...... 744,904 1,795,769 1,940,503
--------- ---------- ----------
Net increase in net assets .............................................. 887,893 1,805,944 1,941,551
Net assets
Beginning of period ..................................................... -- -- --
--------- ---------- ----------
End of period ........................................................... $ 887,893 $1,805,944 $1,941,551
========= ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Wanger
International Wanger U.S.
Small Cap Small Cap
Sub-Account(3) Sub-Account(3)
---------------- ----------------
<S> <C> <C>
From operations
Net investment loss ..................................................... $ (30) $ (65)
Net realized gain ....................................................... -- 29
Net unrealized appreciation ............................................. 3,861 9,066
-------- --------
Net increase in net assets resulting from operations .................... 3,831 9,030
-------- --------
From accumulation unit transactions
Participant deposits .................................................... 8,061 11,399
Participant transfers ................................................... 284,998 447,242
Participant withdrawals ................................................. (484) (674)
-------- --------
Net increase in net assets resulting from participant transactions ...... 292,575 457,967
-------- --------
Net increase in net assets .............................................. 296,406 466,997
Net assets
Beginning of period ..................................................... -- --
-------- --------
End of period ........................................................... $296,406 $466,997
======== ========
(1) From inception May 1, 1996 to December 31, 1996
(2) From inception September 18, 1996 to December 31, 1996
(3) From inception December 18, 1996 to December 31, 1996
</TABLE>
See Notes to Financial Statements
32
<PAGE>
PHOENIX HOME LIFE VARIABLE UNIVERSAL LIFE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
Note 1--Organization
Phoenix Home Life Variable Universal Life Account (the "Account") is a
separate investment account of Phoenix Home Life Mutual Insurance Company
(Phoenix). The Account is offered as Flex Edge and Flex Edge Success for
individual variable life insurance and as Joint Edge for variable first-to-die
joint life insurance. The Account is registered as a unit investment trust
under the Investment Company Act of 1940, as amended, and currently consists of
twelve Sub-Accounts, that invest in a corresponding series of The Phoenix Edge
Series Fund, or Wanger Advisors Trust (the "Funds").
Each series has distinct investment objectives. The Money Market Series is
a short-term investment fund. The Growth Series is a growth common stock fund.
The Multi-Sector Fixed Income Series 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
internationally diversified 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.
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 ........................... $24,741,678 $23,649,364
Growth ................................. 74,873,217 11,780,750
Multi-Sector Fixed Income .............. 7,751,739 2,427,026
Strategic Allocation ................... 11,873,632 2,733,352
International .......................... 14,334,763 4,919,601
Balanced ............................... 6,251,920 1,863,892
Real Estate ............................ 3,551,387 624,453
Strategic Theme ........................ 3,086,981 355,827
Aberdeen New Asia ...................... 1,164,685 1,541,033
Enhanced Index ......................... 1,996,553 84,221
Wanger Advisors Trust:
Wanger International Small Cap ......... 7,495,468 799,948
Wanger U.S. Small Cap .................. 14,506,011 562,538
</TABLE>
Note 4--Participant Accumulation Unit Transactions (in units)
<TABLE>
<CAPTION>
Sub-Account
--------------------------------------------------------------------------------------------
Money Multi-Sector Strategic
Market Growth Fixed Income Allocation International Balanced
-------------- ------------ -------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Flex Edge and Flex Edge Success:
Units outstanding, beginning of period . 10,724,432 47,488,023 5,233,038 10,993,304 20,012,736 10,200,782
Participant deposits ................... 19,441,883 12,224,278 1,660,100 2,243,760 4,956,751 1,966,680
Participant transfers .................. (16,331,954) (111,168) 768,740 631,459 76,649 208,481
Participant withdrawals ................ (2,946,179) (5,804,421) (692,262) (1,315,119) (2,354,334) (1,223,284)
------------- ---------- --------- ---------- ----------- -----------
Units outstanding, end of period ....... 10,888,182 53,796,712 6,969,616 12,553,404 22,691,802 11,152,659
============= ========== ========= ========== =========== ===========
Wanger
Strategic Aberdeen Enhanced International Wanger U.S.
Real Estate Theme New Asia Index Small Cap Small Cap
---------------- ---------- -------------- ------------- ---------------- -----------
Units outstanding, beginning of period . 661,261 1,662,135 1,908,225 -- 276,887 432,094
Participant deposits ................... 694,118 1,168,665 544,018 279,879 2,032,782 2,821,067
Participant transfers .................. 1,369,217 1,023,653 (839,908) 1,587,831 4,347,440 9,260,836
Participant withdrawals ................ (222,186) (329,249) (153,781) (67,917) (501,136) (756,874)
------------- ---------- ---------- ------------- ----------- -----------
Units outstanding, end of period ....... 2,502,410 3,525,204 1,458,554 1,799,793 6,155,973 11,757,123
============= ========== ========== ============= =========== ===========
</TABLE>
33
<PAGE>
PHOENIX HOME LIFE VARIABLE UNIVERSAL LIFE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Money Multi-Sector Strategic
Market Growth Fixed Income Allocation International Balanced
--------------- ------------- -------------- ------------- -------------- -----------
Joint Edge:
<S> <C> <C> <C> <C> <C> <C>
Units outstanding, beginning of period ..... 524,887 1,887,862 145,848 315,311 891,214 495,615
Participant deposits ....................... 1,559,669 951,327 71,988 125,380 375,497 130,272
Participant transfers ...................... (1,247,797) 168,606 53,880 27,451 65,833 (9,439)
Participant withdrawals .................... (186,345) (483,672) (40,821) (74,282) (214,166) (82,921)
-------------- --------- -------- ------- ----------- --------
Units outstanding, end of period ........... 650,414 2,524,123 230,895 393,860 1,118,378 533,527
============== ========= ======== ======= =========== ========
Wanger
Strategic Aberdeen Enhanced International Wanger U.S
Real Estate Theme New Asia Index Small Cap Small Cap
--------------- --------- -------------- ---------- ---------------- ----------
Units outstanding, beginning of period ..... 19,197 143,329 34,915 -- 11,716 17,668
Participant deposits ....................... 63,663 168,852 54,008 20,878 152,815 212,241
Participant transfers ...................... 58,532 80,865 34,503 12,228 227,435 330,381
Participant withdrawals .................... (20,042) (73,089) (16,074) (2,108) (40,526) (56,445)
-------------- --------- -------- ---------- ------------ --------
Units outstanding, end of period ........... 121,350 319,957 107,352 30,998 351,440 503,845
============== ========= ======== ========== ============ ========
</TABLE>
Note 5--Policy Loans
Transfers are made to Phoenix's general account as a result of policy
loans. Policy provisions allow policyowners to borrow up to 90% of a policy's
cash value with an interest rate set in accordance with the contract due and
payable on each policy anniversary. At the time a loan is granted, an amount
equivalent to the amount of the loan is transferred from the Account to
Phoenix's general account as collateral for the outstanding loan. These
transfers are included in participant withdrawals in the accompanying financial
statements. Amounts in the general account are credited with interest at 2% for
Flex Edge success policies, and 6% for Joint Edge and Flex Edge policies. Loan
repayments result in a transfer of collateral back to the Account.
Note 6--Investment Advisory Fees and Related Party Transactions
Phoenix and its indirect, majority owned subsidiary, Phoenix Equity
Planning Corporation, a registered broker/dealer in securities, provide all
services to the Account.
The cost of insurance is charged to each policy on a monthly basis by a
withdrawal of participant units prorated among the elected Sub-Accounts. The
amount charged to each policy depends on a number of variables including sex,
age and risk class as well as the death benefit and cash value of the policy.
Such costs aggregated $24,715,463 during the year 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 partial surrender charge equal
to a pro rata portion of the applicable surrender charge is deducted from the
policy value and paid to Phoenix.
Phoenix Equity Planning Corporation is the principal underwriter and
distributor of the Account. Phoenix Equity Planning Corporation is reimbursed
for its distribution and underwriting expenses by Phoenix.
Policies which are surrendered during the first ten policy years will
incur a surrender charge, consisting of a contingent deferred sales charge
designed to recover expenses for the distribution of Policies that are
terminated by surrender before distribution expenses have been recouped, and a
contingent deferred issue charge designed to recover expenses for the
administration of Policies that are terminated by surrender before
administrative expenses have been recouped. These are contingent charges paid
only if the Policy is surrendered (or a partial withdrawal is taken or the Face
Amount is reduced or the Policy lapses) during the first ten policy years. The
charges are deferred (i.e. not deducted from premiums).
Phoenix assumes the mortality risk that insureds may live for a shorter
time than projected because of inaccuracies in the projecting process and,
accordingly, that an aggregate amount of death benefits greater than projected
will be payable. The expense risk assumed is that expenses incurred in issuing
the policies may exceed the limits on administrative charges set in the
policies. In return for the assumption of these mortality and expense risks,
Phoenix charges the Account an annual rate of 0.80% of the average daily net
assets of the Account for mortality and expense risks assumed for Flex Edge and
Joint Edge. For Flex Edge Success, the Account is charged an annual rate of
0.80% for the first fifteen years and 0.25% thereafter.
Note 7--Diversification Requirements
Under the provisions of Section 817(h) of the Internal Revenue Code (the
"Code"), a variable universal life contract, other than a contract issued in
connection with certain types of employee benefit plans, will not be treated as
a universal life contract for federal tax purposes for any period for which the
investments of the segregated asset account on which the contract is based are
not adequately diversified. The Code provides that the "adequately diversified"
requirement may be met if the underlying investments satisfy either a statutory
safe harbor test or diversification requirements set forth in regulations
issued by the Secretary of Treasury.
The Internal Revenue Service has issued regulations under Section 817(h)
of the Code. Phoenix believes that the Account satisfies the current
requirements of the regulations, and it intends that the Account will continue
to meet such requirements.
34
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
[Price Waterhouse LLP logotype] [LOGO]
To the Board of Directors of Phoenix Home Life Mutual Insurance Company and
Participants of Phoenix Home Life Variable Universal Life Account
In our opinion, the accompanying statement of assets and liabilities and the
related statement of operations and of changes in net assets present fairly, in
all material respects, the financial position of the Money Market Sub-Account,
Growth Sub-Account, Multi-Sector Fixed Income Sub-Account, Strategic Allocation
Sub-Account, International Sub-Account, Balanced Sub-Account, Real Estate
Sub-Account, Strategic Theme Sub-Account, Aberdeen New Asia Sub-Account,
Enhanced Index Sub-Account, Wanger International Small Cap Sub-Account and
Wanger U.S. Small Cap Sub-Account (constituting the Phoenix Home Life Variable
Universal Life Account, hereafter referred to as the "Account") at December 31,
1997 and the results of each of their operations and the changes in each of
their net assets for each of the periods indicated, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Account's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of investments at December 31, 1997 by
correspondence with the Funds' custodians, provide a reasonable basis for the
opinion expressed above.
/s/ Price Waterhouse LLP
Hartford, Connecticut
February 19, 1998
35
<PAGE>
PHOENIX HOME LIFE
VARIABLE UNIVERSAL LIFE ACCOUNT
Phoenix Home Life Mutual Insurance Company
One American Row
Hartford, Connecticut 06115
Underwriter
Phoenix Equity Planning Corporation
P.O. Box 2200
100 Bright Meadow Boulevard
Enfield, Connecticut 06083-2200
Custodians
The Chase Manhattan Bank, N.A.
1 Chase Manhattan Plaza
Floor 3B
New York, New York 10081
Brown Brothers Harriman & Co.
(International Series, Aberdeen New Asia Series)
40 Water Street
Boston, Massachusetts 02109
State Street Bank and Trust
(Real Estate Series, Enhanced Index Series)
P.O. Box 351
Boston, Massachusetts 02101
Independent Accountants
Price Waterhouse LLP
One Financial Plaza
Hartford, Connecticut 06103
36
<PAGE>
PHOENIX HOME LIFE MUTUAL
INSURANCE COMPANY
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
37
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Report of Independent Accountants ............................................39
Consolidated Balance Sheet at December 31, 1997 and 1996 .....................40
Consolidated Statement of Income and Equity for the Years Ended
December 31, 1997, 1996 and 1995 ...........................................41
Consolidated Statement of Cash Flows for the Years Ended
December 31, 1997, 1996 and 1995 ............................................42
Notes to Consolidated Financial Statements ................................43-69
38
<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
39
<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.
40
<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.
41
<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.
42
<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.
43
<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.
44
<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.
45
<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.
46
<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.
47
<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>
48
<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>
49
<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.
50
<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.
51
<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.
52
<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.
53
<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>
54
<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.
55
<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.
56
<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>
57
<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
=========== ========== ============
58
<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>
59
<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.
60
<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.
61
<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.
62
<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>
63
<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.
64
<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>
65
<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>
66
<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.
67
<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>
68
<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.
69
<PAGE>
APPENDIX A
THE GUARANTEED INTEREST ACCOUNT
Contributions to the GIA under the Policy and transfers to the GIA become
part of 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%
on Single Life Policies (4% on Single Life Policies in New York), and 6% for
Multiple Life Policies. Phoenix may credit interest at a rate in excess of 4%
per year; however, it is not obligated to credit any interest in excess of 4%
per year.
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, ONE TRANSFER PER CONTRACT YEAR IS ALLOWED FROM THE GIA. THE
AMOUNT WHICH CAN BE TRANSFERRED IS LIMITED TO THE GREATER OF $1,000 OR 25% OF
THE CONTRACT VALUE IN THE GIA AT THE TIME OF THE TRANSFER. UNDER THE SYSTEMATIC
TRANSFER PROGRAM, TRANSFERS OF APPROXIMATELY EQUAL AMOUNTS MAY BE MADE OVER A
MINIMUM 18-MONTH PERIOD. NON-SYSTEMATIC TRANSFERS FROM THE GIA WILL BE
EFFECTUATED ON THE DATE OF RECEIPT BY VPMO, UNLESS OTHERWISE REQUESTED BY THE
CONTRACT OWNER.
70
<PAGE>
APPENDIX B
ILLUSTRATIONS OF DEATH BENEFITS, POLICY VALUES ("ACCOUNT VALUES")
AND CASH SURRENDER VALUES
The tables on the following pages illustrate how a Policy's death benefits,
account values and Cash Surrender Value could vary over time assuming constant
hypothetical gross (after tax) annual investment returns of 0%, 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%, 6% or 12% over a period of years but went
above or below those figures in individual Policy Years. The Policy benefits
also will differ, depending on your premium allocations to each Subaccount of
the VUL Account, if the overall actual rates of return averaged 0%, 6% or 12%,
but went above or below those figures for the individual Subaccounts. The tables
are for standard risk males and females who have never smoked. In states where
cost of insurance rates are not based on the Insured's sex, the tables
designated "male" apply to all standard risk insureds who have never smoked.
Account values and Cash Surrender Values may be lower for smokers or former
smokers or for risk classes involving higher mortality risk. Planned premium
payments are assumed to be paid at the beginning of each Policy Year. The
difference between the Policy Value and the Cash Surrender Value in the first 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 $150.
2. Monthly administrative charge of $5 per month ($10 per month guaranteed
maximum).
3. Premium tax charge of 2.25% (will vary from state to state on Multiple Life
Policies).
4. A federal tax charge of 1.5% (for Single Life Policies only).
5. Cost of insurance charge. The tables illustrate cost of insurance at both
the current rates and at the maximum rates guaranteed in the Policies. (See
"Charges and Deductions--Cost of Insurance.")
6. Mortality and expense risk charge, which is a daily charge equivalent to
.80% on an annual basis (or for Single Life Policies, .25% on an annual
basis after the 15th Policy Year), against the VUL Account for mortality and
expense risks. (See "Charges and Deductions--Mortality and Expense Risk
Charge.")
These illustrations also assume an average investment advisory fee of .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%. All other Fund expenses, except capital items such as
brokerage commissions, are paid by the Adviser or Phoenix. Management may decide
to limit the amount of expense reimbursement in the future. If expense
reimbursement had not been in place for the fiscal year ended December 31, 1997,
average total operating expenses for the Series would have been approximately
1.17% 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.
71
<PAGE>
<TABLE>
<CAPTION>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY PAGE 1 OF 2
STATUTORY HOME OFFICE: EAST GREENBUSH, NEW YORK
FACE AMOUNT: $100,000
INITIAL ANNUAL PREMIUM: $1,000
MALE 35 NEVERSMOKE
THE FLEX EDGE SUCCESS -- A FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY OPTION 1
ASSUMING CURRENT CHARGES
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>
1 1,000 1,050 574 0 100,000 620 0 100,000 665 0 100,000
2 1,000 2,153 1,280 395 100,000 1,411 526 100,000 1,548 663 100,000
3 1,000 3,310 1,963 656 100,000 2,226 919 100,000 2,511 1,204 100,000
4 1,000 4,526 2,624 1,317 100,000 3,065 1,758 100,000 3,561 2,254 100,000
5 1,000 5,802 3,261 1,954 100,000 3,926 2,619 100,000 4,706 3,399 100,000
6 1,000 7,142 3,874 2,712 100,000 4,811 3,649 100,000 5,953 4,791 100,000
7 1,000 8,549 4,460 3,443 100,000 5,717 4,700 100,000 7,312 6,295 100,000
8 1,000 10,027 5,020 4,148 100,000 6,646 5,773 100,000 8,795 7,923 100,000
9 1,000 11,578 5,553 5,117 100,000 7,596 7,160 100,000 10,412 9,976 100,000
10 1,000 13,207 6,058 6,058 100,000 8,569 8,569 100,000 12,177 12,177 100,000
11 1,000 14,917 6,539 6,539 100,000 9,570 9,570 100,000 14,112 14,112 100,000
12 1,000 16,713 6,998 6,998 100,000 10,599 10,599 100,000 16,233 16,233 100,000
13 1,000 18,599 7,435 7,435 100,000 11,660 11,660 100,000 18,560 18,560 100,000
14 1,000 20,579 7,848 7,848 100,000 12,751 12,751 100,000 21,115 21,115 100,000
15 1,000 22,657 8,237 8,237 100,000 13,875 13,875 100,000 23,923 23,923 100,000
16 1,000 24,840 8,652 8,652 100,000 15,117 15,117 100,000 27,161 27,161 100,000
17 1,000 27,132 9,042 9,042 100,000 16,401 16,401 100,000 30,741 30,741 100,000
18 1,000 29,539 9,404 9,404 100,000 17,730 17,730 100,000 34,702 34,702 100,000
19 1,000 32,066 9,738 9,738 100,000 19,103 19,103 100,000 39,088 39,088 100,000
20 1,000 34,719 10,039 10,039 100,000 20,521 20,521 100,000 43,945 43,945 100,000
@ 65 1,000 69,761 9,940 9,940 100,000 38,995 38,995 100,000 148,153 148,153 177,785
</TABLE>
Based on 0% interest rate and guaranteed charges, the Policy will lapse in year
34.
Death benefit, account value and Cash Surrender Value are based on hypothetical
gross interest rates shown, assume current and guaranteed charges and no Policy
loans or withdrawals, and are calculated at the end of the Policy Year. Assumed
Premium Payments shown are assumed paid in full at the beginning of the Policy
Year. Payment of premiums shown other than in full at the beginning of the
Policy Year would reduce values and benefits below the hypothetical illustrated
amounts shown. Values shown reflect an effective annual asset charge of 1.84%
for 15 years, then 1.29% thereafter (includes mortality and expense risk charge
of 0.8% for 15 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 GIA providing interest at a minimum guaranteed
rate of 4% also is available under this product through the General Account.
This illustration assumes a premium tax of 2.25%.
72
<PAGE>
<TABLE>
<CAPTION>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY PAGE 2 OF 2
STATUTORY HOME OFFICE: EAST GREENBUSH, NEW YORK
FACE AMOUNT: $100,000
INITIAL ANNUAL PREMIUM: $1,000
MALE 35 NEVERSMOKE
THE FLEX EDGE SUCCESS -- A FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY OPTION 1
ASSUMING GUARANTEED CHARGES
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>
1 1,000 1,050 512 0 100,000 555 0 100,000 598 0 100,000
2 1,000 2,153 1,155 270 100,000 1,279 394 100,000 1,408 523 100,000
3 1,000 3,310 1,778 471 100,000 2,023 716 100,000 2,289 982 100,000
4 1,000 4,526 2,378 1,071 100,000 2,787 1,480 100,000 3,249 1,942 100,000
5 1,000 5,802 2,956 1,649 100,000 3,571 2,264 100,000 4,293 2,986 100,000
6 1,000 7,142 3,509 2,347 100,000 4,374 3,212 100,000 5,431 4,268 100,000
7 1,000 8,549 4,037 3,020 100,000 5,195 4,178 100,000 6,667 5,650 100,000
8 1,000 10,027 4,540 3,667 100,000 6,034 5,162 100,000 8,015 7,142 100,000
9 1,000 11,578 5,015 4,579 100,000 6,891 6,455 100,000 9,482 9,046 100,000
10 1,000 13,207 5,462 5,462 100,000 7,765 7,765 100,000 11,081 11,081 100,000
11 1,000 14,917 5,880 5,880 100,000 8,655 8,655 100,000 12,824 12,824 100,000
12 1,000 16,713 6,267 6,267 100,000 9,559 9,559 100,000 14,725 14,725 100,000
13 1,000 18,599 6,621 6,621 100,000 10,478 10,478 100,000 16,799 16,799 100,000
14 1,000 20,579 6,941 6,941 100,000 11,410 11,410 100,000 19,064 19,064 100,000
15 1,000 22,657 7,224 7,224 100,000 12,353 12,353 100,000 21,539 21,539 100,000
16 1,000 24,840 7,513 7,513 100,000 13,382 13,382 100,000 24,381 24,381 100,000
17 1,000 27,132 7,759 7,759 100,000 14,426 14,426 100,000 27,507 27,507 100,000
18 1,000 29,539 7,957 7,957 100,000 15,480 15,480 100,000 30,948 30,948 100,000
19 1,000 32,066 8,101 8,101 100,000 16,542 16,542 100,000 34,739 34,739 100,000
20 1,000 34,719 8,185 8,185 100,000 17,604 17,604 100,000 38,918 38,918 100,000
@ 65 1,000 69,761 2,706 2,706 100,000 27,607 27,607 100,000 128,279 128,279 153,935
</TABLE>
Based on 0% interest rate and guaranteed charges, the Policy will lapse in year
34.
Death benefit, account value and Cash Surrender Value are based on hypothetical
gross interest rates shown, assume current and guaranteed charges and no Policy
loans or withdrawals, and are calculated at the end of the Policy Year. Assumed
Premium Payments shown are assumed paid in full at the beginning of the Policy
Year. Payment of premiums shown other than in full at the beginning of the
Policy Year would reduce values and benefits below the hypothetical illustrated
amounts shown. Values shown reflect an effective annual asset charge of 1.84%
for 15 years, then 1.29% thereafter (includes mortality and expense risk charge
of 0.8% for 15 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 GIA providing interest at a minimum guaranteed
rate of 4% also is available under this product through the General Account.
This illustration assumes a premium tax of 2.25%.
73
<PAGE>
<TABLE>
<CAPTION>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY PAGE 1 OF 2
STATUTORY HOME OFFICE: EAST GREENBUSH, NEW YORK
FACE AMOUNT: $100,000
INITIAL ANNUAL PREMIUM: $1,000
FEMALE 35 NEVERSMOKE
THE FLEX EDGE SUCCESS--A FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY OPTION 1
ASSUMING CURRENT CHARGES
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>
1 1,000 1,050 601 0 100,000 647 0 100,000 694 0 100,000
2 1,000 2,153 1,333 479 100,000 1,467 613 100,000 1,608 754 100,000
3 1,000 3,310 2,042 846 100,000 2,312 1,117 100,000 2,605 1,410 100,000
4 1,000 4,526 2,728 1,533 100,000 3,182 1,987 100,000 3,693 2,498 100,000
5 1,000 5,802 3,390 2,195 100,000 4,076 2,881 100,000 4,879 3,684 100,000
6 1,000 7,142 4,029 2,965 100,000 4,995 3,931 100,000 6,173 5,110 100,000
7 1,000 8,549 4,640 3,708 100,000 5,938 5,005 100,000 7,584 6,652 100,000
8 1,000 10,027 5,226 4,425 100,000 6,905 6,104 100,000 9,124 8,323 100,000
9 1,000 11,578 5,787 5,387 100,000 7,899 7,499 100,000 10,807 10,408 100,000
10 1,000 13,207 6,323 6,323 100,000 8,920 8,920 100,000 12,649 12,649 100,000
11 1,000 14,917 6,841 6,841 100,000 9,997 9,997 100,000 14,672 14,672 100,000
12 1,000 16,713 7,340 7,340 100,000 11,070 11,070 100,000 16,895 16,895 100,000
13 1,000 18,599 7,822 7,822 100,000 12,201 12,201 100,000 19,339 19,339 100,000
14 1,000 20,579 8,285 8,285 100,000 13,371 13,371 100,000 22,027 22,027 100,000
15 1,000 22,657 8,730 8,730 100,000 14,583 14,583 100,000 24,985 24,985 100,000
16 1,000 24,840 9,207 9,207 100,000 15,925 15,925 100,000 28,399 28,399 100,000
17 1,000 27,132 9,667 9,667 100,000 17,323 17,323 100,000 32,179 32,179 100,000
18 1,000 29,539 10,109 10,109 100,000 18,778 18,778 100,000 36,367 36,367 100,000
19 1,000 32,066 10,530 10,530 100,000 20,293 20,293 100,000 41,007 41,007 100,000
20 1,000 34,719 10,932 10,932 100,000 21,870 21,870 100,000 46,153 46,153 100,000
@ 65 1,000 69,761 13,637 13,637 100,000 44,267 44,267 100,000 156,674 156,674 188,010
</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, then 1.29% thereafter (includes mortality and expense risk charge
of 0.8% for 15 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 GIA providing interest at a minimum guaranteed
rate of 4% also is available under this product through the General Account.
This illustration assumes a premium tax of 2.25%.
74
<PAGE>
<TABLE>
<CAPTION>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY PAGE 2 OF 2
STATUTORY HOME OFFICE: EAST GREENBUSH, NEW YORK
FACE AMOUNT: $100,000
INITIAL ANNUAL PREMIUM: $1,000
FEMALE 35 NEVERSMOKE
THE FLEX EDGE SUCCESS--A FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY OPTION 1
ASSUMING GUARANTEED CHARGES
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>
1 1,000 1,050 533 0 100,000 577 0 100,000 621 0 100,000
2 1,000 2,153 1,197 343 100,000 1,323 469 100,000 1,455 601 100,000
3 1,000 3,310 1,839 644 100,000 2,090 895 100,000 2,363 1,168 100,000
4 1,000 4,526 2,459 1,264 100,000 2,878 1,683 100,000 3,351 2,156 100,000
5 1,000 5,802 3,055 1,860 100,000 3,687 2,492 100,000 4,428 3,232 100,000
6 1,000 7,142 3,628 2,564 100,000 4,516 3,452 100,000 5,600 4,536 100,000
7 1,000 8,549 4,173 3,241 100,000 5,363 4,430 100,000 6,875 5,942 100,000
8 1,000 10,027 4,694 3,893 100,000 6,230 5,429 100,000 8,264 7,463 100,000
9 1,000 11,578 5,188 4,789 100,000 7,117 6,718 100,000 9,780 9,380 100,000
10 1,000 13,207 5,659 5,659 100,000 8,027 8,027 100,000 11,436 11,436 100,000
11 1,000 14,917 6,104 6,104 100,000 8,960 8,960 100,000 13,246 13,246 100,000
12 1,000 16,713 6,524 6,524 100,000 9,915 9,915 100,000 15,227 15,227 100,000
13 1,000 18,599 6,918 6,918 100,000 10,893 10,893 100,000 17,395 17,395 100,000
14 1,000 20,579 7,283 7,283 100,000 11,892 11,892 100,000 19,770 19,770 100,000
15 1,000 22,657 7,621 7,621 100,000 12,915 12,915 100,000 22,372 22,372 100,000
16 1,000 24,840 7,972 7,972 100,000 14,037 14,037 100,000 25,365 25,365 100,000
17 1,000 27,132 8,292 8,292 100,000 15,189 15,189 100,000 28,668 28,668 100,000
18 1,000 29,539 8,578 8,578 100,000 16,371 16,371 100,000 32,315 32,315 100,000
19 1,000 32,066 8,824 8,824 100,000 17,580 17,580 100,000 36,343 36,343 100,000
20 1,000 34,719 9,030 9,030 100,000 18,817 18,817 100,000 40,797 40,797 100,000
@ 65 1,000 69,761 7,917 7,917 100,000 34,434 34,434 100,000 136,712 136,712 164,055
</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, then 1.29% thereafter (includes mortality and expense risk charge
of 0.8% for 15 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 GIA providing interest at a minimum guaranteed
rate of 4% also is available under this product through the General Account.
This illustration assumes a premium tax of 2.25%.
75
<PAGE>
<TABLE>
<CAPTION>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY PAGE 1 OF 2
STATUTORY HOME OFFICE: EAST GREENBUSH, NEW YORK
FACE AMOUNT: $100,000
INITIAL ANNUAL PREMIUM: $1,000
MALE 35 NEVERSMOKE
THE FLEX EDGE SUCCESS--A FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY OPTION 2
ASSUMING CURRENT CHARGES
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>
1 1,000 1,050 573 0 100,574 618 0 100,619 664 0 100,664
2 1,000 2,153 1,276 391 101,277 1,407 522 101,408 1,544 659 101,544
3 1,000 3,310 1,956 649 101,957 2,218 911 102,218 2,502 1,195 102,502
4 1,000 4,526 2,612 1,305 102,612 3,050 1,743 103,050 3,544 2,237 103,544
5 1,000 5,802 3,242 1,935 103,242 3,902 2,595 103,903 4,676 3,369 104,676
6 1,000 7,142 3,846 2,684 103,846 4,775 3,612 104,775 5,907 4,745 105,907
7 1,000 8,549 4,422 3,404 104,422 5,665 4,648 105,665 7,243 6,226 107,244
8 1,000 10,027 4,969 4,097 104,970 6,574 5,702 106,575 8,696 7,823 108,696
9 1,000 11,578 5,486 5,051 105,487 7,499 7,064 107,500 10,273 9,837 110,273
10 1,000 13,207 5,974 5,974 105,974 8,442 8,442 108,443 11,987 11,987 111,988
11 1,000 14,917 6,436 6,436 106,436 9,407 9,407 109,407 13,857 13,857 113,858
12 1,000 16,713 6,873 6,873 106,873 10,394 10,394 110,395 15,898 15,898 115,898
13 1,000 18,599 7,284 7,284 107,285 11,404 11,404 111,405 18,125 18,125 118,126
14 1,000 20,579 7,671 7,671 107,671 12,438 12,438 112,438 20,558 20,558 120,559
15 1,000 22,657 8,031 8,031 108,031 13,493 13,493 113,494 23,216 23,216 123,217
16 1,000 24,840 8,412 8,412 108,412 14,655 14,655 114,655 26,266 26,266 126,267
17 1,000 27,132 8,765 8,765 108,765 15,846 15,846 115,846 29,618 29,618 129,618
18 1,000 29,539 9,086 9,086 109,087 17,066 17,066 117,066 33,299 33,299 133,299
19 1,000 32,066 9,375 9,375 109,376 18,313 18,313 118,314 37,342 37,342 137,343
20 1,000 34,719 9,628 9,628 109,628 19,586 19,586 119,586 41,783 41,783 141,784
@ 65 1,000 69,761 8,587 8,587 108,588 33,820 33,820 133,820 130,894 130,894 230,894
</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, then 1.29% thereafter (includes mortality and expense risk charge
of 0.8% for 15 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 GIA providing interest at a minimum guaranteed
rate of 4% also is available under this product through the General Account.
This illustration assumes a premium tax of 2.25%.
76
<PAGE>
<TABLE>
<CAPTION>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY PAGE 2 OF 2
STATUTORY HOME OFFICE: EAST GREENBUSH, NEW YORK
FACE AMOUNT: $100,000
INITIAL ANNUAL PREMIUM: $1,000
MALE 35 NEVERSMOKE
THE FLEX EDGE SUCCESS--A FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY OPTION 2
ASSUMING GUARANTEED CHARGES
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>
1 1,000 1,050 510 0 100,511 553 0 100,554 597 0 100,597
2 1,000 2,153 1,152 267 101,152 1,275 390 101,275 1,404 518 101,404
3 1,000 3,310 1,771 464 101,771 2,015 708 102,015 2,280 973 102,280
4 1,000 4,526 2,366 1,059 102,367 2,773 1,466 102,773 3,232 1,925 103,232
5 1,000 5,802 2,937 1,630 102,938 3,548 2,241 103,549 4,265 2,958 104,266
6 1,000 7,142 3,483 2,321 103,484 4,340 3,178 104,341 5,387 4,225 105,387
7 1,000 8,549 4,001 2,984 104,002 5,146 4,129 105,147 6,602 5,585 106,603
8 1,000 10,027 4,492 3,619 104,492 5,967 5,095 105,968 7,921 7,049 107,922
9 1,000 11,578 4,953 4,517 104,953 6,800 6,365 106,801 9,351 8,916 109,352
10 1,000 13,207 5,384 5,384 105,385 7,647 7,647 107,647 10,903 10,903 110,904
11 1,000 14,917 5,783 5,783 105,784 8,502 8,502 108,503 12,585 12,585 112,586
12 1,000 16,713 6,148 6,148 106,149 9,365 9,365 109,366 14,408 14,408 114,408
13 1,000 18,599 6,478 6,478 106,478 10,235 10,238 110,235 16,384 16,384 116,384
14 1,000 20,579 6,770 6,770 106,771 11,108 11,108 111,108 18,526 18,526 118,527
15 1,000 22,657 7,023 7,023 107,024 11,981 11,981 111,982 20,848 20,848 120,848
16 1,000 24,840 7,276 7,276 107,277 12,926 12,926 112,926 23,495 23,495 123,496
17 1,000 27,132 7,483 7,483 107,483 13,870 13,870 113,870 26,379 26,379 126,379
18 1,000 29,539 7,636 7,636 107,636 14,805 14,805 114,806 29,516 29,516 129,517
19 1,000 32,066 7,730 7,730 107,730 15,727 15,727 115,727 32,929 32,929 132,929
20 1,000 34,719 7,758 7,758 107,758 16,624 16,624 116,624 36,637 36,637 136,637
@ 65 1,000 69,761 1,428 1,428 101,428 21,596 21,596 121,597 105,362 105,362 205,363
</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, then 1.29% thereafter (includes mortality and expense risk charge
of 0.8% for 15 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 GIA providing interest at a minimum guaranteed
rate of 4% also is available under this product through the General Account.
This illustration assumes a premium tax of 2.25%.
77
<PAGE>
<TABLE>
<CAPTION>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY PAGE 1 OF 2
STATUTORY HOME OFFICE: EAST GREENBUSH, NEW YORK
FACE AMOUNT: $100,000
INITIAL ANNUAL PREMIUM: $1,000
FEMALE 35 NEVERSMOKE
THE FLEX EDGE SUCCESS--A FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY OPTION 2
ASSUMING CURRENT CHARGES
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>
1 1,000 1,050 600 0 100,601 646 0 100,647 693 0 100,693
2 1,000 2,153 1,329 476 101,330 1,464 610 101,464 1,604 750 101,605
3 1,000 3,310 2,035 840 102,036 2,305 1,109 102,305 2,597 1,401 102,597
4 1,000 4,526 2,717 1,522 102,718 3,169 1,973 103,169 3,677 2,482 103,678
5 1,000 5,802 3,373 2,178 103,374 4,055 2,859 104,055 4,853 3,658 104,853
6 1,000 7,142 4,004 2,940 104,004 4,963 3,899 104,963 6,132 5,068 106,133
7 1,000 8,549 4,606 3,673 104,606 5,891 4,959 105,892 7,522 6,590 107,523
8 1,000 10,027 5,180 4,379 105,180 6,841 6,040 106,841 9,035 8,234 109,036
9 1,000 11,578 5,727 5,327 105,727 7,812 7,412 107,813 10,682 10,283 110,683
10 1,000 13,207 6,247 6,247 106,248 8,806 8,806 108,807 12,478 12,478 112,478
11 1,000 14,917 6,747 6,747 106,748 9,830 9,830 109,831 14,442 14,442 114,443
12 1,000 16,713 7,227 7,227 107,228 10,885 10,885 110,886 16,594 16,594 116,594
13 1,000 18,599 7,687 7,687 107,687 11,972 11,972 111,972 18,950 18,950 118,950
14 1,000 20,579 8,126 8,126 108,127 13,091 13,091 113,091 21,530 21,530 121,531
15 1,000 22,657 8,546 8,546 108,546 14,244 14,244 114,244 24,358 24,358 124,358
16 1,000 24,840 8,994 8,994 108,994 15,516 15,516 115,517 27,609 27,609 127,609
17 1,000 27,132 9,422 9,422 109,423 16,834 16,834 116,834 31,192 31,192 131,192
18 1,000 29,539 9,830 9,830 109,830 18,197 18,197 118,198 35,141 35,141 135,142
19 1,000 32,066 10,213 10,213 110,214 19,606 19,606 119,607 39,493 39,493 139,493
20 1,000 34,719 10,575 10,575 110,575 21,063 21,063 121,064 44,291 44,291 144,292
@ 65 1,000 69,761 12,554 12,554 112,554 40,342 40,342 140,343 143,916 143,916 243,917
</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, then 1.29% thereafter (includes mortality and expense risk charge
of 0.8% for 15 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 GIA 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%.
78
<PAGE>
<TABLE>
<CAPTION>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY PAGE 2 OF 2
STATUTORY HOME OFFICE: EAST GREENBUSH, NEW YORK
FACE AMOUNT: $100,000
INITIAL ANNUAL PREMIUM: $1,000
FEMALE 35 NEVERSMOKE
THE FLEX EDGE SUCCESS--A FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY OPTION 2
ASSUMING GUARANTEED CHARGES
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>
1 1,000 1,050 532 0 100,533 576 0 100,576 620 0 100,621
2 1,000 2,153 1,194 340 101,194 1,320 466 101,320 1,451 597 101,452
3 1,000 3,310 1,833 638 101,833 2,083 888 102,083 2,354 1,159 102,355
4 1,000 4,526 2,448 1,253 102,449 2,865 1,670 102,866 3,336 2,141 103,337
5 1,000 5,802 3,038 1,843 103,039 3,666 2,471 103,666 4,402 3,207 104,402
6 1,000 7,142 3,603 2,539 103,604 4,484 3,420 104,485 5,559 4,496 105,560
7 1,000 8,549 4,140 3,207 104,140 5,318 4,385 105,318 6,815 5,882 106,815
8 1,000 10,027 4,649 3,848 104,649 6,167 5,366 106,168 8,177 7,376 108,178
9 1,000 11,578 5,130 4,731 105,131 7,033 6,633 107,034 9,658 9,258 109,659
10 1,000 13,207 5,585 5,585 105,586 7,917 7,917 107,917 11,269 11,269 111,270
11 1,000 14,917 6,013 6,013 106,014 8,817 8,817 108,817 13,023 13,023 113,023
12 1,000 16,713 6,414 6,414 106,414 9,734 9,734 109,735 14,932 14,932 114,933
13 1,000 18,599 6,785 6,785 106,785 10,666 10,666 110,667 17,010 17,010 117,011
14 1,000 20,579 7,126 7,126 107,126 11,613 11,613 111,613 19,273 19,273 119,273
15 1,000 22,657 7,435 7,435 107,436 12,573 12,573 112,573 21,737 21,737 121,738
16 1,000 24,840 7,755 7,755 107,755 13,619 13,619 113,619 24,555 24,555 124,556
17 1,000 27,132 8,039 8,039 108,040 14,682 14,682 114,682 27,642 27,642 127,642
18 1,000 29,539 8,285 8,285 108,286 15,759 15,759 115,760 31,021 31,021 131,022
19 1,000 32,066 8,487 8,487 108,488 16,846 16,846 116,846 34,718 34,718 134,719
20 1,000 34,719 8,645 8,645 108,646 17,940 17,940 117,940 38,766 38,766 138,767
@ 65 1,000 69,761 6,695 6,695 106,696 29,570 29,570 129,571 119,441 119,441 219,441
</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, then 1.29% thereafter (includes mortality and expense risk charge
of 0.8% for 15 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 GIA 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%.
79
<PAGE>
<TABLE>
<CAPTION>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY PAGE 1 OF 2
STATUTORY HOME OFFICE: EAST GREENBUSH, NEW YORK
FACE AMOUNT: $100,000
INITIAL ANNUAL PREMIUM: $1,000
MALE 35 NEVERSMOKE
FEMALE 35 NEVERSMOKE
JOINT EDGE--A FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY OPTION 1
ASSUMING CURRENT CHARGES
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>
1 1,000 1,050 504 0 100,000 548 0 100,000 592 0 100,000
2 1,000 2,153 1,137 155 100,000 1,261 279 100,000 1,390 408 100,000
3 1,000 3,310 1,748 668 100,000 1,993 913 100,000 2,259 1,179 100,000
4 1,000 4,526 2,336 1,166 100,000 2,743 1,573 100,000 3,203 2,033 100,000
5 1,000 5,802 2,899 1,694 100,000 3,511 2,306 100,000 4,229 3,024 100,000
6 1,000 7,142 3,437 2,376 100,000 4,295 3,234 100,000 5,344 4,284 100,000
7 1,000 8,549 3,949 3,034 100,000 5,097 4,181 100,000 6,558 5,642 100,000
8 1,000 10,027 4,433 3,737 100,000 5,913 5,217 100,000 7,878 7,182 100,000
9 1,000 11,578 4,892 4,415 100,000 6,748 6,271 100,000 9,316 8,840 100,000
10 1,000 13,207 5,321 5,321 100,000 7,597 7,597 100,000 10,883 10,883 100,000
11 1,000 14,917 5,718 5,718 100,000 8,459 8,459 100,000 12,590 12,590 100,000
12 1,000 16,713 6,075 6,075 100,000 9,326 9,326 100,000 14,443 14,443 100,000
13 1,000 18,599 6,390 6,390 100,000 10,197 10,197 100,000 16,457 16,457 100,000
14 1,000 20,579 6,662 6,662 100,000 11,069 11,069 100,000 18,648 18,648 100,000
15 1,000 22,657 6,886 6,886 100,000 11,939 11,939 100,000 21,033 21,033 100,000
16 1,000 24,840 7,060 7,060 100,000 12,805 12,805 100,000 23,633 23,633 100,000
17 1,000 27,132 7,186 7,186 100,000 13,668 13,668 100,000 26,474 26,474 100,000
18 1,000 29,539 7,259 7,259 100,000 14,524 14,524 100,000 29,581 29,581 100,000
19 1,000 32,066 7,275 7,275 100,000 15,368 15,368 100,000 32,983 32,983 100,000
20 1,000 34,719 7,227 7,227 100,000 16,195 16,195 100,000 36,712 36,712 100,000
@ 65 1,000 69,761 0 0 0 21,333 21,333 100,000 113,833 113,833 136,600
</TABLE>
Based on 0% interest rate and guaranteed charges, the Policy will lapse in year
24.
Death benefit, account value and Cash Surrender Value are based on hypothetical
gross interest rates shown, assume current and guaranteed charges and no Policy
loans or withdrawals, and are calculated at the end of the Policy Year. Assumed
Premium Payments shown are assumed paid in full at the beginning of the Policy
Year. Payment of premiums shown other than in full at the beginning of the
Policy Year would reduce values and benefits below the hypothetical illustrated
amounts shown. Values shown reflect an effective annual asset charge of 1.84%
(includes mortality and expense risk charge of 0.8% 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 GIA 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%.
80
<PAGE>
<TABLE>
<CAPTION>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY PAGE 2 OF 2
STATUTORY HOME OFFICE: EAST GREENBUSH, NEW YORK
FACE AMOUNT: $100,000
INITIAL ANNUAL PREMIUM: $1,000
MALE 35 NEVERSMOKE
FEMALE 35 NEVERSMOKE
JOINT EDGE--A FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY OPTION 1
ASSUMING GUARANTEED CHARGES
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>
1 1,000 1,050 387 0 100,000 427 0 100,000 467 0 100,000
2 1,000 2,153 900 0 100,000 1,008 26 100,000 1,122 140 100,000
3 1,000 3,310 1,383 303 100,000 1,594 514 100,000 1,824 744 100,000
4 1,000 4,526 1,837 667 100,000 2,182 1,012 100,000 2,575 1,404 100,000
5 1,000 5,802 2,256 1,051 100,000 2,769 1,564 100,000 3,375 2,170 100,000
6 1,000 7,142 2,641 1,581 100,000 3,353 2,293 100,000 4,230 3,170 100,000
7 1,000 8,549 2,986 2,071 100,000 3,929 3,013 100,000 5,139 4,223 100,000
8 1,000 10,027 3,292 2,596 100,000 4,496 3,800 100,000 6,109 5,413 100,000
9 1,000 11,578 3,557 3,081 100,000 5,052 4,576 100,000 7,144 6,667 100,000
10 1,000 13,207 3,782 3,782 100,000 5,596 5,596 100,000 8,251 8,251 100,000
11 1,000 14,917 3,961 3,961 100,000 6,124 6,124 100,000 9,435 9,435 100,000
12 1,000 16,713 4,095 4,095 100,000 6,632 6,632 100,000 10,702 10,702 100,000
13 1,000 18,599 4,178 4,178 100,000 7,117 7,117 100,000 12,060 12,060 100,000
14 1,000 20,579 4,209 4,209 100,000 7,573 7,573 100,000 13,514 13,514 100,000
15 1,000 22,657 4,183 4,183 100,000 7,996 7,996 100,000 15,074 15,074 100,000
16 1,000 24,840 4,094 4,094 100,000 8,378 8,378 100,000 16,747 16,747 100,000
17 1,000 27,132 3,936 3,936 100,000 8,709 8,709 100,000 18,540 18,540 100,000
18 1,000 29,539 3,697 3,697 100,000 8,978 8,978 100,000 20,462 20,462 100,000
19 1,000 32,066 3,367 3,367 100,000 9,171 9,171 100,000 22,518 22,518 100,000
20 1,000 34,719 2,936 2,936 100,000 9,274 9,274 100,000 24,722 24,722 100,000
@ 65 1,000 69,761 0 0 0 0 0 0 65,540 65,540 100,000
</TABLE>
Based on 0% interest rate and guaranteed charges, the Policy will lapse in year
24.
Death benefit, account value and Cash Surrender Value are based on hypothetical
gross interest rates shown, assume current and guaranteed charges and no Policy
loans or withdrawals, and are calculated at the end of the Policy Year. Assumed
Premium Payments shown are assumed paid in full at the beginning of the Policy
Year. Payment of premiums shown other than in full at the beginning of the
Policy Year would reduce values and benefits below the hypothetical illustrated
amounts shown. Values shown reflect an effective annual asset charge of 1.84%
(includes mortality and expense risk charge of 0.8% 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 GIA 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%
81
<PAGE>
<TABLE>
<CAPTION>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY PAGE 1 OF 2
STATUTORY HOME OFFICE: EAST GREENBUSH, NEW YORK
FACE AMOUNT: $100,000
INITIAL ANNUAL PREMIUM: $1,000
MALE 35 NEVERSMOKE
FEMALE 35 NEVERSMOKE
JOINT EDGE--A FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY OPTION 2
ASSUMING CURRENT CHARGES
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>
1 1,000 1,050 502 0 100,503 546 0 100,546 590 0 100,590
2 1,000 2,153 1,132 150 101,133 1,255 273 101,256 1,384 402 101,385
3 1,000 3,310 1,738 657 101,738 1,981 901 101,981 2,245 1,165 102,245
4 1,000 4,526 2,318 1,148 102,319 2,722 1,552 102,722 3,178 2,007 103,178
5 1,000 5,802 2,872 1,667 102,873 3,477 2,272 103,478 4,188 2,983 104,188
6 1,000 7,142 3,398 2,338 103,399 4,245 3,185 104,246 5,280 4,220 105,281
7 1,000 8,549 3,897 2,981 103,898 5,026 4,111 105,027 6,464 5,549 106,465
8 1,000 10,027 4,365 3,669 104,366 5,818 5,122 105,818 7,745 7,049 107,745
9 1,000 11,578 4,805 4,329 104,805 6,621 6,145 106,622 9,133 8,656 109,133
10 1,000 13,207 5,213 5,213 105,213 7,433 7,433 107,434 10,635 10,635 110,636
11 1,000 14,917 5,585 5,585 105,586 8,250 8,250 108,251 12,260 12,260 112,261
12 1,000 16,713 5,915 5,915 105,915 9,063 9,063 109,063 14,010 14,010 114,010
13 1,000 18,599 6,199 6,199 106,199 9,869 9,869 109,869 15,894 15,894 115,894
14 1,000 20,579 6,435 6,435 106,435 10,664 10,664 110,664 17,922 17,922 117,923
15 1,000 22,657 6,619 6,619 106,620 11,443 11,443 111,443 20,104 20,104 120,105
16 1,000 24,840 6,750 6,750 106,751 12,202 12,202 112,202 22,453 22,453 122,454
17 1,000 27,132 6,828 6,828 106,829 12,940 12,940 112,941 24,985 24,985 124,986
18 1,000 29,539 6,850 6,850 106,850 13,652 13,652 113,652 27,713 27,713 127,714
19 1,000 32,066 6,809 6,809 106,810 14,330 14,330 114,330 30,651 30,651 130,652
20 1,000 34,719 6,702 6,702 106,703 14,966 14,966 114,966 33,813 33,813 133,814
@ 65 1,000 69,761 0 0 0 15,101 15,101 115,933 87,604 87,604 180,878
</TABLE>
Based on 0% interest rate and guaranteed charges, the Policy will lapse in year
24.
Death benefit, account value and Cash Surrender Value are based on hypothetical
gross interest rates shown, assume current and guaranteed charges and no Policy
loans or withdrawals, and are calculated at the end of the Policy Year. Assumed
Premium Payments shown are assumed paid in full at the beginning of the Policy
Year. Payment of premiums shown other than in full at the beginning of the
Policy Year would reduce values and benefits below the hypothetical illustrated
amounts shown. Values shown reflect an effective annual asset charge of 1.84%
(includes mortality and expense risk charge of 0.8% 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 GIA 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%.
82
<PAGE>
<TABLE>
<CAPTION>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY PAGE 2 OF 2
STATUTORY HOME OFFICE: EAST GREENBUSH, NEW YORK
FACE AMOUNT: $100,000
INITIAL ANNUAL PREMIUM: $1,000
MALE 35 NEVERSMOKE
FEMALE 35 NEVERSMOKE
JOINT EDGE--A FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY OPTION 2
ASSUMING GUARANTEED CHARGES
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>
1 1,000 1,050 385 0 100,385 424 0 100,425 464 0 100,465
2 1,000 2,153 894 0 100,894 1,002 20 101,003 1,115 133 101,116
3 1,000 3,310 1,372 292 101,373 1,581 501 101,582 1,809 729 101,810
4 1,000 4,526 1,818 648 101,818 2,160 989 102,160 2,548 1,377 102,548
5 1,000 5,802 2,228 1,023 102,228 2,734 1,529 102,734 3,331 2,126 103,331
6 1,000 7,142 2,601 1,540 102,601 3,300 2,240 103,301 4,161 3,101 104,162
7 1,000 8,549 2,931 2,015 102,932 3,854 2,938 103,854 5,038 4,122 105,039
8 1,000 10,027 3,220 2,524 103,220 4,394 3,698 104,394 5,965 5,269 105,966
9 1,000 11,578 3,465 2,989 103,466 4,916 4,440 104,916 6,945 6,468 106,945
10 1,000 13,207 3,667 3,667 103,668 5,420 5,420 105,420 7,982 7,982 107,982
11 1,000 14,917 3,822 3,822 103,823 5,900 5,900 105,900 9,077 9,077 109,078
12 1,000 16,713 3,928 3,928 103,928 6,351 6,351 106,352 10,234 10,234 110,234
13 1,000 18,599 3,981 3,981 103,982 6,770 6,770 106,770 11,453 11,453 111,454
14 1,000 20,579 3,980 3,980 103,980 7,150 7,150 107,150 12,738 12,738 112,738
15 1,000 22,657 3,919 3,919 103,919 7,484 7,484 107,484 14,089 14,089 114,089
16 1,000 24,840 3,794 3,794 103,794 7,765 7,765 107,765 15,507 15,507 115,507
17 1,000 27,132 3,597 3,597 103,598 7,981 7,981 107,982 16,989 16,989 116,990
18 1,000 29,539 3,320 3,320 103,320 8,119 8,119 108,119 18,531 18,531 118,531
19 1,000 32,066 2,951 2,951 102,951 8,163 8,163 108,163 20,125 20,125 120,125
20 1,000 34,719 2,482 2,482 102,483 8,098 8,098 108,099 21,766 21,766 121,767
@ 65 1,000 69,761 0 0 0 0 0 0 40,242 40,242 138,956
</TABLE>
Based on 0% interest rate and guaranteed charges, the Policy will lapse in year
24.
Death benefit, account value and Cash Surrender Value are based on hypothetical
gross interest rates shown, assume current and guaranteed charges and no Policy
loans or withdrawals, and are calculated at the end of the Policy Year. Assumed
Premium Payments shown are assumed paid in full at the beginning of the Policy
Year. Payment of premiums shown other than in full at the beginning of the
Policy Year would reduce values and benefits below the hypothetical illustrated
amounts shown. Values shown reflect an effective annual asset charge of 1.84%
(includes mortality and expense risk charge of 0.8% 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 GIA 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%.
83
<PAGE>
VERSION B
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
HOME OFFICE: PHOENIX VARIABLE PRODUCTS
One American Row MAIL OPERATIONS (VPMO):
Hartford, Connecticut PO Box 8027
Boston, MA 02266-802
VARIABLE LIFE INSURANCE POLICY
PROSPECTUS
May 1, 1998
As Supplemented November 2, 1998 and February 1, 1999
This Prospectus describes a Flexible Premium Variable Life Insurance Policy
(the "Policy"), offered by Phoenix Home Life Mutual Insurance Company
("Phoenix"). An applicant chooses the amount of Issue Premium desired and it is
then shown in the Policy. Generally, the minimum Issue Premium Phoenix will
accept is 1/6 of the Planned Annual Premium. Phoenix may, in some cases, accept
less than that amount. The amount and payment frequency of planned premiums are
as shown in the Policy. If too much is paid in premium in the early Policy
Years, the Policy could become a modified endowment contract. This would cause
loans and other amounts received under the Policy to be subject to tax and/or
penalties. Currently, Phoenix notifies a Policyowner when a Policy becomes a
modified endowment contract.
Premium payments are allocated to one or more of the Subaccounts of the
Phoenix Home Life Variable Universal Life Account (the "VUL Account") or to the
Guaranteed Interest Account ("GIA"), as specified in the applicant's application
for insurance. The VUL Account is divided into Subaccounts, each of which
invests in a corresponding series of the Phoenix Edge Series Fund, Wanger
Advisors Trust or Templeton Variable Products Series Fund (each the "Fund" or
collectively, the "Funds"). For certain Policyowners, the Issue Premium is first
allocated to the Money Market Subaccount before being allocated according to the
instructions in the application.
There is no guaranteed minimum Policy Value except for that portion of
Policy Value invested in the GIA, which has a 4% minimum interest rate
guarantee. The Policy Value not invested in the GIA will vary to reflect the
investment experience of the Subaccounts of the VUL Account to which premiums
have been allocated. A Policyowner bears the investment risk for all amounts so
allocated. The Policy will remain in effect so long as the Policy Value or Cash
Surrender Value is sufficient to pay certain monthly charges imposed in
connection with the Policy.
The death benefit under the Policy equals the Policy's face amount on the
date of the Insured's death or, if greater, the Policy Value on the date of
death increased by the applicable percentage set forth in the Policy. Other
death benefit options also are available.
A Policyowner may cancel the Policy within 10 days (or longer in some
states), after the Policyowner receives it or 10 days after Phoenix mails or
delivers a written notice of withdrawal right to the Policyowner, or within 45
days of completing the application, whichever is latest.
IT MAY NOT BE ADVANTAGEOUS TO PURCHASE A POLICY AS A REPLACEMENT FOR 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 provides information about the Policy that prospective
investors should know before investing and 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.
1
<PAGE>
TABLE OF CONTENTS
Heading Page
- -------------------------------------------------------------------
VARIABLE LIFE INSURANCE POLICY .......................... 1
TABLE OF CONTENTS ....................................... 2
SPECIAL TERMS ........................................... 3
SUMMARY ................................................. 3
PERFORMANCE HISTORY...................................... 5
PHOENIX AND THE VUL ACCOUNT ............................. 6
Phoenix............................................... 6
The VUL Account ...................................... 7
The GIA .............................................. 7
THE POLICY .............................................. 7
Introduction ......................................... 7
Eligible Purchasers .................................. 7
Premium Payment ...................................... 7
Allocation of Issue Premium .......................... 8
Right to Cancel Period ............................... 8
Temporary Insurance Coverage ......................... 8
Transfer of Policy Value ............................. 8
Determination of Subaccount Values ................... 9
Death Benefit ........................................ 9
Surrenders ........................................... 10
Policy Loans ......................................... 10
Lapse ................................................ 11
Payment of Premiums During Period of Disability ...... 11
Additional Insurance Options ......................... 11
Additional Rider Benefits ............................ 12
INVESTMENTS OF THE VUL ACCOUNT .......................... 13
Participating Investment Funds ....................... 13
Investment Advisers................................... 14
Services of the Advisers.............................. 15
Reinvestment and Redemption .......................... 15
Substitution of Investments .......................... 15
CHARGES AND DEDUCTIONS .................................. 15
Monthly Deduction .................................... 15
Premium Taxes ........................................ 16
Mortality and Expense Risk Charge .................... 16
Investment Management Charge ......................... 16
Other Charges ........................................ 16
GENERAL PROVISIONS ...................................... 17
Postponement of Payments ............................. 17
Payment by Check .................................. 17
The Contract ......................................... 17
Suicide .............................................. 18
Incontestability ..................................... 18
Change of Owner or Beneficiary ....................... 18
Assignment ........................................... 18
Misstatement of Age or Sex ........................... 18
Surplus .............................................. 18
PAYMENT OF PROCEEDS ..................................... 18
Surrender and Death Benefit Proceeds ................. 18
Payment Options ...................................... 18
FEDERAL TAX CONSIDERATIONS .............................. 19
Introduction ......................................... 19
Phoenix's Tax Status ................................. 19
Policy Benefits ...................................... 19
Business-Owned Policies............................... 20
Modified Endowment Contracts ......................... 20
Limitations on Unreasonable Mortality
and Expense Charges ............................... 21
Qualified Plans ...................................... 21
Diversification Standards ............................ 21
Change of Ownership or Insured or Assignment ......... 21
Other Taxes .......................................... 21
VOTING RIGHTS ........................................... 21
The Funds ............................................ 21
Phoenix .............................................. 22
THE DIRECTORS AND EXECUTIVE OFFICERS OF PHOENIX ......... 22
SAFEKEEPING OF THE VUL ACCOUNT'S ASSETS ................. 23
SALES OF POLICIES ....................................... 23
STATE REGULATION ........................................ 23
REPORTS ................................................. 23
LEGAL PROCEEDINGS ....................................... 23
LEGAL MATTERS ........................................... 23
REGISTRATION STATEMENT .................................. 23
YEAR 2000 ISSUE.......................................... 24
FINANCIAL STATEMENTS .................................... 24
APPENDIX A .............................................. 69
APPENDIX B .............................................. 70
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT BE LAWFULLY MADE. NO DEALER, SALESPERSON OR OTHER PERSON
IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS IN CONNECTION
WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND IF GIVEN
OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON.
2
<PAGE>
SPECIAL TERMS
- ------------------------------------------------------------------------------
As used in this Prospectus, the following terms have the indicated meanings:
ATTAINED AGE: The age of the Insured on the birthday nearest the most recent
Policy Anniversary.
BENEFICIARY: The person or persons specified by the Policyowner as entitled to
receive the death benefits under a Policy.
CASH SURRENDER VALUE: The Policy Value less any surrender charge that would
apply on the date of surrender and less any Debt.
DEATH BENEFIT GUARANTEE: An additional benefit rider available with the Policy
that guarantees a death benefit equal to the initial face amount or the face
amount as later increased or decreased, provided that Minimum Required Premiums
are paid. See "Additional Rider Benefits."
DEBT: Outstanding loans against a Policy, plus accrued interest.
FUND(S): The Phoenix Edge Series Fund, Wanger Advisors Trust and Templeton
Variable Products Series Fund.
GENERAL ACCOUNT: The general asset account of Phoenix.
GUARANTEED INTEREST ACCOUNT (GIA): An allocation option under which amounts
deposited are guaranteed to earn a fixed rate of interest. Excess interest also
may be credited, in the sole discretion of Phoenix.
IN FORCE: Conditions under which the coverage under a Policy is in effect and
the Insured's life remains insured.
INSURED: The person upon whose life the Policy is issued.
IN WRITING (WRITTEN REQUEST): In a written form satisfactory to Phoenix and
delivered to VPMO.
ISSUE PREMIUM: The premium payment made in connection with the issue of the
Policy.
MATURITY DATE: The latest date that the Policy will terminate.
MINIMUM REQUIRED PREMIUM: The required premium as specified in the Policy.
An increase or decrease in the face amount of the Policy will change the
Minimum Required Premium amount.
MONTHLY CALCULATION DAY: The first Monthly Calculation Day is the same day as
the Policy Date. Subsequent Monthly Calculation Days are the same day of each
month thereafter or, if such day does not fall within a given month, the last
day of that month will be the Monthly Calculation Day.
PAYMENT DATE: The Valuation Date on which a premium payment or loan repayment is
received at Phoenix, unless it is received after the close of the New York Stock
Exchange (the "NYSE"), in which case it will be the next Valuation Date.
PHOENIX: Phoenix Home Life Mutual Insurance Company, Hartford, Connecticut.
PLANNED ANNUAL PREMIUM: The premium amount that the Policyowner agrees to pay
each Policy Year. It must be at least equal to the minimum premium required for
the face amount of insurance selected and must be no greater than the maximum
premium allowed for the face amount selected.
POLICY ANNIVERSARY: Each anniversary of the Policy Date.
POLICY DATE: The Policy Date as shown on the Schedule Page of the Policy. It
is the date from which Policy Years and Policy Anniversaries are measured.
POLICY MONTH: The period from one Monthly Calculation Day up to, but not
including, the next Monthly Calculation Day.
POLICYOWNER (OWNER): The Owner of a Policy.
POLICY VALUE: The sum of a Policy's share in the values of each Subaccount of
the VUL Account plus the Policy's share in the values of the GIA.
POLICY YEAR: The first Policy Year is the one-year period from the Policy Date
up to, but not including, the first Policy Anniversary. Each succeeding Policy
Year is the one-year period from the Policy Anniversary up to, but not
including, the next Policy Anniversary.
PROPORTIONATE: Amounts allocated to Subaccounts on a proportionate basis are
allocated by increasing (or decreasing) a Policy's share in the value of the
affected Subaccounts so that such shares maintain the same ratio to each other
before and after the allocation.
SERIES: 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 Operation Division of Phoenix that
receives and processes incoming mail for Variable Products Operations.
VUL ACCOUNT: Phoenix Home Life Variable Universal Life Account.
VULA: Variable and Universal Life Administration Division of Phoenix.
SUMMARY
- ------------------------------------------------------------------------------
1. WHAT IS THE DIFFERENCE BETWEEN THE POLICY AND A CONVENTIONAL FIXED BENEFIT
LIFE INSURANCE POLICY?
Like conventional fixed benefit life insurance, so long as the Policy
remains In Force, the Policy will provide for: (1) the payment of a death
benefit to a Beneficiary upon the Insured's death; (2) the accumulation of cash
value; and (3) surrender rights and Policy loan privileges.
The Policy differs from conventional fixed benefit life insurance by
allowing Policyowners to allocate premiums to one or more Subaccounts of the VUL
Account or to the GIA. Each Subaccount
3
<PAGE>
invests exclusively in a designated portfolio of the Fund. Also, under the
Policy, the Policy Value invested in the VUL Account is not guaranteed and may
increase or decrease depending upon the investment experience of the Subaccounts
of the VUL Account. Accordingly, the Policyowner bears the investment risk of
any depreciation in value of the underlying assets but reaps the benefits of any
appreciation in value. See "Policy Value."
In addition, unlike conventional fixed benefit life insurance, a Policyowner
also has the flexibility to make additional premium payments and to thereby
adjust the Policy Value. However, unlike conventional fixed benefit life
insurance, the Policy does not require a Policyowner to adhere to a fixed
premium payment schedule. Moreover, after the payment of the Issue Premium, the
failure to make additional premium payments will not in itself cause the Policy
to lapse. Conversely, the payment of additional premiums will not guarantee that
the Policy will remain In Force. Generally, lapse will occur when the Cash
Surrender Value is insufficient to pay certain charges deducted on the Monthly
Calculation Day, and a grace period expires without payment of the additional
amount required. See "Lapse."
If a Whole Life Exchange Option Rider is attached to the Policy, the Policy
may be exchanged for a fixed benefit whole life policy. See "Additional Rider
Benefits."
2. IS THERE A GUARANTEED ACCOUNT OPTION?
Yes. A Policyowner may elect to have premium payments allocated to the GIA.
Amounts allocated to the GIA earn a fixed rate of interest and Phoenix also may,
in its sole discretion, credit excess interest. See Appendix A.
3. WHAT IS THE DEATH BENEFIT UNDER THE POLICY?
The Policy provides for the payment of a benefit upon the death of the
Insured. Upon application for a Policy, an applicant designates an Issue
Premium. The Policy indicates the face amount of insurance. The death benefit
will equal the face amount on the date of the Insured's death or, if greater,
the Policy Value on the date of the Insured's death increased by the applicable
percentage set forth in the Policy. If the enhanced death benefit option is
selected, the death benefit will equal the face amount on the date of the
Insured's death plus the Policy Value or, if greater, the Policy Value on the
date of the Insured's death increased by the applicable percentage set forth in
the Policy. Guaranteed death benefit and living benefits riders also are
available. See "Death Benefit."
4. HOW LONG WILL THE POLICY REMAIN IN FORCE?
The Policy will lapse only when the Cash Surrender Value is insufficient to
pay the monthly deduction (see "Charges and Deductions--Monthly Deductions"),
and a grace period expires without payment of the additional amount required. In
this respect, the Policy differs in two important respects from a conventional
life insurance Policy. First, the failure to pay additional premiums will not
automatically cause the Policy to lapse. Second, the payment of premiums of any
prespecified amount does not guarantee that the Policy will remain In Force
until the Maturity Date. A rider is available to ensure that premium payments
will continue during a period of disability.
5. WHAT CHARGES ARE THERE IN CONNECTION WITH THE POLICY?
MONTHLY DEDUCTION: A deduction is made each Policy Month from the Policy
Value (excluding the value of the loaned portion of the GIA) to pay the cost of
insurance provided under the Policy; the cost of any rider benefits provided;
any unpaid balance of the $150 issue expense charge; and an administrative
charge as shown on the Schedule Page of the Policy. The administrative charge
may vary but in no event will it exceed $10 per month. Currently, the
administrative charge is $5 per month. See "Charges and Deductions."
OTHER CHARGES: A fee equal to the lesser of $25 or 2% of the partial
surrender amount paid is deducted from the Policy Value for each partial
surrender. A partial surrender charge equal to a pro rata portion of the
applicable surrender charge that would apply to a full surrender, determined by
applying a formula, also is assessed against the VUL Account Subaccounts or the
GIA when a partial surrender is made.
No charges are currently made from the VUL Account or the GIA for federal or
state income taxes. If Phoenix determines that such taxes may be imposed, it may
make deductions from the VUL Account to pay these taxes.
Phoenix charges each Subaccount of the VUL Account the daily equivalent of
0.80% on an annual basis of the current value of the Subaccount's net assets for
its assumption of certain mortality and expense risks incurred in connection
with the Policy.
Premium amounts also are reduced by any applicable state premium tax based
on the Policyowner's last known address on record with VULA and, for payments
made during a grace period, by the amount needed to cover any monthly deductions
made during the grace period.
In addition, certain charges are deducted from the assets of the Funds. For
investment advisory services, each Series of a Fund pays the adviser a separate
monthly fee calculated on the basis of its average daily net assets during the
year. See "Charges and Deductions--Other Charges."
6. IS THERE A RIGHT TO CANCEL PERIOD?
Yes. The Policyowner may cancel the Policy within 10 days after the
Policyowner receives it (or longer in some states), or 10 days after Phoenix
mails or delivers a written notice of withdrawal right to the Policyowner, or
within 45 days of completing the application, whichever is latest.
7. HOW ARE PREMIUMS ALLOCATED?
If the applicant elects the Temporary Money Market Allocation Amendment in
the application, Phoenix will allocate the entire Issue Premium less any
applicable charges to the Money Market Subaccount of the VUL Account. Phoenix
requires this election for all applicants in certain states and for applicants
in certain states who indicate on their application that they intend the Policy
to replace existing insurance. At the expiration of the Right to Cancel Period
for such Policyowners, the Policy Value will be allocated among the Subaccounts
of the VUL Account or to the GIA in accordance with the Policyowner's allocation
instructions in the application for insurance. All other Policyowners will have
their Issue Premium less any applicable charges allocated according to the
instructions in the application on the date it is received without first having
the premium placed in the Money Market Subaccount. The Policy Value may be
allocated among the available Subaccounts of the VUL Account, each
4
<PAGE>
of which invests in shares of a designated portfolio of the Funds, or to the
GIA.
8. AFTER THE INITIAL ALLOCATION, MAY I CHANGE THE ALLOCATION OF POLICY VALUE?
Yes. A Policyowner may transfer amounts among the Subaccounts of the VUL
Account or the GIA. Only one transfer per Policy Year is permitted from the
unloaned portion of the GIA. The amount of that transfer is limited to the
higher of $1,000 or 25% of the value of the Policy in the unloaned portion of
the GIA. Also, Phoenix reserves the right to require that transfers be made by
Written Request. Phoenix further reserves the right to permit transfers of less
than $500 only if the entire balance in the Subaccount of the VUL Account or the
GIA is transferred. A systematic transfer program also is available. See
"Transfer of Policy Value."
9. MAY THE POLICY BE SURRENDERED?
Yes. A Policyowner may totally surrender the Policy at any time and receive
the Cash Surrender Value. Subject to certain limitations, the Policyowner also
may partially surrender the Policy at any time prior to the Maturity Date. In
the future, Phoenix may set a minimum partial surrender amount, not to exceed
$500. See "Surrenders--Partial Surrenders." A partial surrender will result in a
decrease in the death benefit under the Policy. See "Death Benefit." If the
Policy is totally or partially surrendered during the first 10 Policy Years, a
surrender charge will apply. See "Surrender Charge." In addition, there may be
certain tax consequences as the result of a surrender. For example, a Policy may
be a modified endowment contract if the amount of premium paid during the first
seven Policy Years is more than the amount that would have been paid if the
Policy had provided for paid-up benefits after the payment of seven level annual
premiums. Distributions such as loans and full or partial surrenders under a
modified endowment contract may be taxable income to the extent they exceed the
premiums paid. If such income is distributed before the Policyowner attains age
59 1/2, a 10% penalty tax may be imposed. See "Federal Tax Considerations."
10. WHAT IS THE POLICY'S LOAN PRIVILEGE?
A Policyowner may obtain Policy loans in an amount up to 90% of the result
of subtracting the remaining surrender charge from the Policy Value. The
interest rate on a loan is at an effective annual rate as stated in the Policy,
compounded daily and payable on each Policy Anniversary in arrears. The
requested loan amount is transferred from the VUL Account to the loaned portion
of the GIA and is credited with interest at an effective annual rate as stated
in the Policy. Phoenix reserves the right not to allow loans of less than $500
unless the loans are to pay premiums on another policy issued by Phoenix. See
"The Policy--Policy Loans."
The proceeds of Policy loans may be subject to federal income tax under
certain circumstances. See "Federal Tax Considerations."
11. HOW ARE INSURANCE BENEFITS PAID?
Surrender and death benefits under the Policy may be paid in a lump sum or
under one of the payment options set forth in the Policy. See "Payment Options."
PERFORMANCE HISTORY
- -----------------------------------------------------------------------------
From time to time, the VUL Account may include the performance history of
any or all Subaccounts, in advertisements, sales literature or reports.
Performance information about each Subaccount is based on past performance only
and is not an indication of future performance. THESE RATES OF RETURN ARE NOT AN
ESTIMATE OR GUARANTEE OF FUTURE PERFORMANCE. THEY DO NOT ILLUSTRATE HOW ACTUAL
PERFORMANCE WILL AFFECT THE BENEFITS UNDER A POLICY BECAUSE THEY DO NOT REFLECT
COST OF INSURANCE, PREMIUM TAX CHARGES AND SURRENDER CHARGES, IF APPLICABLE. FOR
THIS INFORMATION, SEE APPENDIX B "ILLUSTRATIONS OF DEATH BENEFITS, POLICY VALUES
AND CASH SURRENDER VALUES." Performance information may be expressed as yield
and effective yield of the Money Market Subaccount, as yield of the Multi-Sector
Subaccount and as total return of any Subaccount. Current yield for the Money
Market Subaccount will be based on the income earned by the Subaccount over a
given 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 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.
Assumptions:
Value of hypothetical pre-existing account with
exactly one Unit at the beginning of the period:................. 1.439995
Value of the same account (excluding capital changes) at the
end of the seven-day period:..................................... 1.441014
Calculation:
Ending account value ............................................ 1.441014
Less beginning account value .................................... 1.439995
Net change in account value ..................................... 0.001019
Base period return:
(adjusted change/beginning account value) ....................... 0.000708
Current yield = return x (365/7) = ................................ 3.69%
Effective yield = [(1 + return)(365/7)] - 1 = ....................... 3.76%
The current yield and effective yield information will fluctuate, and
publication of yield information may not provide a basis for comparison with
bank deposits, other investments which are insured and/or pay a fixed yield for
a stated period of time, or other investment companies, due to charges which
will be deducted on the Account level.
For the Multi-Sector Subaccount, quotations of yield will be based on all
investment income per Unit earned during a given 30-day period (including
dividends and interest), less expenses accrued during the period ("net
investment income"), and are computed by dividing net investment income by the
maximum offering price per Unit on the last day of the period.
When a Subaccount advertises its total return, it usually will be calculated
for one year, five years and ten years or since inception if
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the Subaccount has not been in existence for at least ten years. Total return is
measured by comparing the value of a hypothetical $10,000 investment in the
Subaccount at the beginning of the relevant period to the value of the
investment at the end of the period, assuming the reinvestment of all
distributions at net asset value and the deduction of the Mortality and Expense
Risk, Issue Expense and Monthly Administrative charges.
For those Subaccounts within the VUL Account that have not been available
for one of the quoted periods, the average annual total return quotations will
show the investment performance such Subaccount would have achieved (reduced by
the applicable charges) had it been available to invest in shares of the Fund
for the period quoted.
Below are quotations of average annual total return calculated as described
above for all subaccounts with at least one year of results. POLICY CHARGES
(INCLUDING COST OF INSURANCE, PREMIUM TAX CHARGES, PREMIUM SALES CHARGES AND
SURRENDER CHARGES) ARE NOT REFLECTED.
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIOD ENDED 12/31/97
-----------------------------
COMMENCE- 10 LIFE OF
SUBACCOUNT MENT DATE 1 YEAR 5 YEARS YEARS FUND
- ---------- --------- ------ ------- ----- ----
Multi-Sector..... 1/1/83 7.92% 9.31% 9.27% 9.59%
Balanced......... 5/1/92 14.61% 9.38% N/A 9.86%
Allocation....... 9/17/84 17.34% 9.46% 10.63% 11.73%
Growth........... 1/1/83 17.67% 14.94% 15.94% 17.11%
International.... 5/1/90 8.87% 13.34% N/A 7.32%
Money Market..... 10/10/82 2.17% 2.79% 4.12% 4.96%
Real Estate...... 5/1/95 18.61% N/A N/A 25.23%
Theme............ 1/29/96 13.86% N/A N/A 11.87%
Asia............. 9/17/96 (34.41%) N/A N/A (28.08%)
Enhanced Index... 7/15/97 N/A N/A N/A 3.57%
U.S. Small Cap... 5/1/95 25.80% N/A N/A 32.34%
Int'l. Small Cap. 5/1/95 (4.27%) N/A N/A 21.28%
ANNUAL TOTAL RETURN*
--------------------
MULTI- ALLO- INTER- MONEY
YEAR SECTOR BALANCED CATION GROWTH NATIONAL MARKET
- ---- ------ -------- ------ ------ -------- -------
1983.... 5.06% N/A N/A 31.71% N/A 7.36%
1984.... 10.34% N/A (1.33%) 9.67% N/A 9.23%
1985.... 19.53% N/A 26.20% 33.71% N/A 7.06%
1986.... 18.22% N/A 14.65% 19.39% N/A 5.56%
1987.... 0.18% N/A 11.55% 5.97% N/A 5.55%
1988.... 9.50% N/A 1.42% 2.98% N/A 6.49%
1989.... 6.85% N/A 18.37% 34.43% N/A 7.93%
1990.... 4.43% N/A 5.05% 3.21% (8.91%) 7.41%
1991.... 18.54% N/A 28.14% 41.46% 18.67% 5.03%
1992.... 9.12% 8.77% 9.68% 9.30% (13.61%) 2.65%
1993.... 14.99% 7.75% 10.12% 18.75% 37.33% 2.06%
1994.... (6.21%) (3.61%) (2.19%) 0.66% (0.73%) 3.01%
1995.... 22.56% 22.37% 17.27% 29.85% 8.72% 4.86%
1996.... 11.52% 9.68% 8.18% 11.69% 17.71% 4.19%
1997.... 10.21% 17.00% 19.78% 20.12% 11.16% 4.35%
REAL ENHANCED U.S. INT'L.
YEAR ESTATE THEME ASIA INDEX SMALL CAP SMALL CAP
- ---- ------ ----- ---- ----- --------- ---------
1995.... 17.19%** N/A N/A N/A 16.01%** 33.96%**
1996.... 32.06% 9.55%** (0.06%)** N/A 45.64% 31.15%
1997.... 21.09% 16.25% (32.94%) 5.46%** 28.41% (2.24%)
* 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 Advisers' current investment strategies and
management style. Current strategies and style may change to respond to a
changing market and economic conditions. From time to time, the Series may
discuss specific portfolio holdings or industries in such communications. To
illustrate components of overall performance, the Series may separate their
cumulative and average annual returns into income results and capital gains or
losses; or cite separately as a return figure the equity or bond portion of a
Series' portfolio; or compare a Series' equity or bond return figure to
well-known indices of market 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 Solomon Brothers Corporate
and Government Bond Indices.
The VUL Account may, from time to time, include in advertisements containing
total returns, the ranking of those performance figures relative to such figures
for groups of Subaccounts having similar investment objectives as categorized by
ranking services such as Lipper Analytical Services, Inc. ("Lipper"), CDA
Investment Technologies, Inc. ("CDA"), Weisenberger Financial Services, Inc. and
Morningstar, Inc. Additionally, the Funds may compare a Series' performance
results to other investment or savings vehicles (such as certificates of
deposit) and may refer to results published in various publications such as
Changing Times, Forbes, Fortune, Money, Barron's, Business Week, Investor's
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), Consumer Price Index, Shearson Lehman Corporate
Index and Shearson Lehman T-Bond Index. The S&P 500 is a commonly quoted market
value-weighted and unmanaged index showing the changes in the aggregate market
value of 500 common stocks relative to the base period 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
- -------------------------------------------------------------------------------
PHOENIX
Phoenix is a mutual life insurance company originally chartered in
Connecticut in 1851 and redomiciled to New York in 1992. Its executive office is
at One American Row, Hartford, Connecticut
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06102 and its main administrative office is at 100 Bright Meadow Boulevard,
Enfield, Connecticut 06083-1900. Its New York principal office is at 10 Krey
Boulevard, East Greenbush, New York 12144. Phoenix is the nation's 9th largest
mutual life insurance company and has consolidated assets of $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 (the "1940 Act"), as amended, and it
meets the definition of a "separate account" under that Act. Such registration
does not involve supervision of the management of the VUL Account or Phoenix by
the 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 the Funds allocable to one of the available Series, each having the
specified investment objective set forth under "Investments of the VUL
Account--Participating Investment Funds."
Phoenix does not guarantee the investment performance of the VUL Account or
any of its Subaccounts. The Policy Value allocated to the VUL Account depends on
the investment performance of the Funds. Thus, the Policyowner bears the full
investment risk for all monies invested in the VUL Account.
The VUL Account is administered and accounted for as part of the general
business of Phoenix, but the income, gains or losses of the VUL Account are
credited to or charged against the assets held in the VUL Account, without
regard to other income, gains or losses of any other business Phoenix may
conduct. Under New York law, the assets of the VUL Account are not chargeable
with liabilities arising out of any other business Phoenix may conduct.
Nevertheless all obligations arising under the Policy are general corporate
obligations of Phoenix.
THE GIA
The GIA is not part of the VUL Account. It is accounted for as part of the
General Account. Phoenix reserves the right to limit cumulative deposits,
including transfers, to the unloaned portion of the GIA to no more than $250,000
during any one-week period. Phoenix will credit interest daily on the amounts
allocated under the Policy to the GIA. The credited rate will be uniform by
class. The loaned portion of the GIA will be credited interest at an effective
annual fixed rate of 6%. Interest on the unloaned portion of the GIA will be
credited at an effective annual rate of not less than 4%.
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, likewise, will remain in effect
for a guarantee period of one full year from the date the new rate is applied.
For more complete information concerning the GIA, see Appendix A.
THE POLICY
- -------------------------------------------------------------------------------
INTRODUCTION
The Policy is a variable life insurance policy. The Policy has a death
benefit, Cash Surrender Value and loan privilege such as is associated with a
traditional fixed benefit whole life policy. The Policy differs from a fixed
benefit whole life policy, however, because the Policyowner specifies into which
of several Subaccounts of the VUL Account or the GIA net premium is to be
allocated. Each Subaccount of the VUL Account, in turn, invests its assets
exclusively in a portfolio of the Funds. The Policy Value varies according to
the investment performance of the Series to which Policy Value has been
allocated.
ELIGIBLE PURCHASERS
Any person up to the age of 75 is eligible to be insured under a newly
purchased Policy after providing acceptable evidence of insurability. A person
can purchase a Policy to insure the life of another person provided that the
Policyowner has an insurable interest in the life of the Insured, and the
Insured consents.
PREMIUM PAYMENT
The minimum Issue Premium for a Policy is generally 1/6 of the Planned
Annual Premium. The Issue Premium is due on the Policy Date. The Insured must be
alive when the Issue Premium is paid. Thereafter, the amount and payment
frequency of planned premiums are as shown on the Schedule Page of the Policy.
All premiums are payable in advance to VPMO, except that the Issue Premium may
be paid to an authorized agent of Phoenix for forwarding to the Underwriting
Department of Phoenix.
Any premium payments will be reduced by the premium tax charge applicable in
the state of the Policyowner's last known address on record with VULA. The Issue
Premium also will be reduced by the issue expense charge of $150 on a pro rata
basis in equal monthly installments over a 12-month period. Any unpaid balance
of the issue expense charge will be paid to Phoenix upon Policy lapse or
termination.
Premium payments received during a grace period also will be reduced by the
amount needed to cover any monthly deductions during the grace period. The
remainder will be applied on the Payment Date to the various Subaccounts of the
VUL Account or to the GIA, based on the premium allocation schedule elected in
the application for the Policy or as later changed. The allocation schedule for
premium payments may be changed by calling VULA or writing to VPMO. Allocations
to the VUL Account Subaccounts or to the GIA must be expressed in terms of whole
percentages.
The number of Units credited to a Subaccount of the VUL Account will be
determined by dividing the portion of the net premium applied to that Subaccount
by the Unit value of the Subaccount on the Payment Date.
A Policyowner may increase or decrease the planned premium amount or payment
frequency at any time by Written Request to VPMO. Phoenix reserves the right to
limit increases to such
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maximums as may be established from time to time. Additional premium payments
may be made at any time. Each premium payment must at least equal $25 or, if
made during a grace period, the payment must equal the amount needed to prevent
lapse of the Policy.
A Policyholder also may elect a Waiver of Premium Rider. This rider provides for
the waiver of certain premium payments under the Policy under certain conditions
during a period of total disability of the Insured. Under its terms, the
specified premium will be waived upon Phoenix's receipt of proof that the
Insured is totally disabled and that the disability occurred while the rider was
In Force.
The Policy contains a total premium limit as shown on the Schedule Page.
This limit is applied to the sum of all premiums paid under the Policy. If the
total premium limit is exceeded, the Policyowner will receive the excess, with
interest at an annual rate of not less than 4%, not later than 60 days after the
end of the Policy Year in which the limit was exceeded. The Policy Value will
then be adjusted to reflect the refund. The amount to be taken from each
Subaccount or the GIA will be allocated in the same manner as provided for
monthly deductions unless the Policyowner requests otherwise In Writing. The
total premium limit may be exceeded if additional premium is needed to prevent
lapse or if Phoenix determines that additional premium would be permitted by
federal laws or regulations.
A Policyowner may authorize his bank to draw $25 or more from his personal
checking account monthly to purchase Units in any available Subaccount. The
amount the Policyowner designates will be automatically invested in the
Subaccount of his choice on the date the bank draws on his account.
Policies sold to officers, directors and employees of Phoenix (and their
spouses and children) will be credited with an amount equal to the first-year
commission that would apply on the amount of premium contributed. This option
also is available to career agents of Phoenix (and their spouses and children).
ALLOCATION OF ISSUE PREMIUM
Phoenix will generally allocate the Issue Premium less applicable charges to
the VUL Account or to the GIA upon receipt of a completed application, in
accordance with the allocation instructions in the application for a Policy.
However, Policies issued in certain states, and Policies issued in certain
states pursuant to applications which state the Policy is intended to replace
existing insurance, are issued with a Temporary Money Market Allocation
Amendment. Under this Amendment, Phoenix temporarily allocates the entire Issue
Premium paid less applicable charges (along with any other premiums paid during
the Right to Cancel Period) to the Money Market Subaccount of the VUL Account,
and, at the expiration of the Right to Cancel Period, the Policy Value of the
Money Market Subaccount is allocated among the Subaccounts of the VUL Account or
to the GIA in accordance with the applicant's allocation instructions in the
application for insurance.
RIGHT TO CANCEL PERIOD
A Policy may be returned by mailing or delivering it to Phoenix within 10
days after the Policyowner receives it (or longer in some states); within 10
days after Phoenix mails or delivers a written notice of withdrawal right to the
Policyowner; or within 45 days after the applicant signs the application for
insurance, whichever occurs latest (the "Right to Cancel Period"). The returned
Policy is treated as if Phoenix never issued the Policy and, except for Policies
issued with a Temporary Money Market Allocation Amendment, Phoenix will return
the sum of the following as of the date Phoenix receives the returned Policy:
(i) the then current Policy Value less any unpaid loans and loan interest; plus
(ii) any monthly deductions, partial surrender fees, other charges made under
the Policy, including investment advisory fees, or any Fund expenses deducted.
The amount returned for Policies issued with the Amendment will equal any
premiums paid less any unrepaid loans and loan interest, and less any partial
surrender amounts paid.
Phoenix reserves the right to disapprove an application for processing
within seven days of receipt at Phoenix of the completed application for
insurance, in which event Phoenix will return the premium paid. Even after
approval of the application for processing, Phoenix reserves the right to
decline issuance of the Policy, in which event Phoenix will refund the applicant
the same amount as would have been refunded under the Policy had it been issued
but returned for refund during the Right to Cancel Period.
TEMPORARY INSURANCE COVERAGE
On the date the application for a Policy is signed and submitted with the
Issue Premium, Phoenix issues a Temporary Insurance Receipt in connection with
the application. Under the Temporary Insurance Receipt, the insurance protection
applied for (subject to the limits of liability and in accordance with the terms
set forth in the Policy and in the Receipt) takes effect on the date of the
application.
TRANSFER OF POLICY VALUE
SYSTEMATIC TRANSFER PROGRAM
A Policyowner may elect to automatically transfer funds among the
Subaccounts or the unloaned portion of the GIA on a monthly, quarterly,
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. A Policyowner must have an
initial value of $1,000 in the GIA or the Subaccount from which funds will be
transferred ("Sending Subaccount") and if the value in that Subaccount or the
GIA drops below the elected transfer amount, the entire remaining balance will
be transferred and no more systematic transfers will be processed. Funds may be
transferred from only one Sending Subaccount or the GIA, but may be allocated to
multiple Subaccounts ("Receiving Subaccounts"). Under the Systematic Transfer
Program, Policyowners may make more than one transfer per Policy Year from the
GIA, in approximate 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 VULA at 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 business day.
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NON-SYSTEMATIC TRANSFERS
Transfers among available Subaccounts or the GIA and changes in premium
payment allocations may be requested In Writing or by calling 800/541-0171,
between the hours of 8:30 a.m. and 4:00 p.m. Eastern Time and will be executed
on the date the request is received at VPMO, except as noted below. Unless the
Policyowner elects In Writing not to authorize telephone transfers or allocation
changes, telephone transfer orders and allocation changes also will be accepted
on behalf of the Policyowner from his or her registered representative. Phoenix
and Phoenix Equity Planning Corporation ("PEPCO") will employ reasonable
procedures to confirm that telephone instructions are genuine. They will require
verification of account information and will record telephone instructions on
tape. All telephone transfers will be confirmed In Writing to the Policyowner.
To the extent that procedures reasonably designed to prevent unauthorized
transfers are not followed, Phoenix and PEPCO may be liable for following
telephone instructions for transfers that prove to be fraudulent. However, the
Policyowner would bear the risk of loss resulting from instructions entered by
an unauthorized third party that Phoenix and PEPCO reasonably believe to be
genuine. These telephone transfer privileges may be modified or terminated at
any time and during times of extreme market volatility, may be difficult to
exercise. In such cases, the Policyowner should submit a Written Request.
Phoenix reserves the right to permit transfers of less than $500 only if the
entire balance in the Subaccount or the GIA is transferred or if the Systematic
Transfer Program has been elected.
Phoenix reserves the right to prohibit a transfer to any Subaccount of the
VUL Account where the resultant value of the Policy's share in that Subaccount
immediately after the transfer would be less than $500. It further reserves the
right to require that the entire balance of a Subaccount or the GIA be
transferred if the value of the Policy's share in that Subaccount would,
immediately after the transfer, be less than $500.
Unless Phoenix agrees otherwise or the Systematic Transfer Program has been
elected, a Policyowner may make only one transfer per Policy Year from the
unloaned portion of the GIA and the amount that may be transferred cannot exceed
the greater of $1,000 or 25% of the value of the Policy in the unloaned portion
of the GIA at the time of the transfer. Non-systematic transfers from the
unloaned portion of the GIA will be effectuated on the date of receipt by VPMO.
For policies issued with the Temporary Money Market Allocation Amendment,
transfers may not be made until termination of the Right to Cancel Period.
Phoenix reserves the right to limit the number of Subaccounts you may elect
to a total of 18 at any one time and/or over the life of the Policy unless
required to be less to comply with changes in federal and/or state regulation,
including tax, securities and insurance law.
Because excessive trading can hurt Fund performance and harm Policyowners,
Phoenix reserves the right to temporarily or permanently terminate exchange
privileges or reject any specific order from anyone whose transactions seem to
follow a timing pattern, including those who request more than one exchange out
of a Subaccount within any 30-day period. Phoenix will not accept batch transfer
instructions from registered representatives (acting under powers of attorney
for multiple Policyowners), unless the registered representative's broker-dealer
firm and Phoenix have entered into a third party transfer service agreement.
DETERMINATION OF SUBACCOUNT VALUES
The Unit value of each Subaccount of the VUL Account was set by Phoenix on
the first Valuation Date of each such Subaccount. The Unit value of a Subaccount
of the VUL Account on any other Valuation Date is determined by multiplying the
Unit value of that Subaccount on the just prior Valuation Date by the Net
Investment Factor for that Subaccount for the then current Valuation Period. The
Unit value of each Subaccount of the VUL Account on a day other than a Valuation
Date is the Unit value on the next Valuation Date. Unit values are carried to
six decimal places. The Unit value of each Subaccount of the VUL Account on a
Valuation Date is determined at the end of that day.
The Net Investment Factor for each Subaccount of the VUL Account is
determined by the investment performance of the assets held by the Subaccount
during the Valuation Period. Each valuation will follow applicable law and
accepted procedures. The Net Investment Factor is equal to item (D) below
subtracted from the result of dividing the sum of items (A) and (B) by item (C).
(A) The value of the assets in the Subaccount on the current Valuation
Date, including accrued net investment income and realized and
unrealized capital gains and losses, but excluding the net value of any
transactions during the current Valuation Period.
(B) The amount of any dividend (or, if applicable, any capital gain
distribution) received by the Subaccount if the "ex-dividend" date for
shares of the Fund occurs during the current Valuation Period.
(C) The value of the assets in the Subaccount as of the just prior
Valuation Date, including accrued net investment income and realized
and unrealized capital gains and losses, and including the net value of
all transactions during the Valuation Period ending on that date.
(D) The sum of the following daily charges multiplied by the number of days
in the current Valuation Period:
1. the mortality and expense risk charge; and
2. the charge, if any, for taxes and reserves for taxes on investment
income, and realized and unrealized capital gains.
DEATH BENEFIT
GENERAL
The death benefit (under Option 1) equals the Policy's face amount on the
date of the Insured's death or, if greater, the minimum death benefit on the
date of death. Under Option 2, the death benefit equals the Policy's face amount
on the date of the Insured's death plus the Policy Value. Under either Option,
the minimum death benefit is the Policy Value on the date of death of the
Insured increased by the applicable percentage from the table contained in the
Policy, based on the Insured's Attained Age at the beginning of the Policy Year
in which the death occurs. If no option is elected, Option 1 will apply.
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GUARANTEED DEATH BENEFIT OPTION
For Policies with a face amount of at least $50,000, a guaranteed death
benefit rider may be purchased. Under this Policy rider, if a Policyowner pays
the required premium each year as specified in the rider, the death benefit
selected will be guaranteed for a certain specified number of years, regardless
of the investment performance of the Policy, and will equal either the initial
face amount or the face amount as later changed by increases or decreases. In
order to keep this guaranteed death benefit In Force, there may be limitations
on the amount of partial surrenders or decreases in face amount permitted.
LIVING BENEFITS OPTION
In the event of a terminal illness of the Insured, an accelerated payment of
up to 75% of the Policy's death benefit (up to a maximum of $250,000) is
available if a Living Benefits Rider has been purchased. The minimum face amount
of the Policy after any such accelerated benefit payment is $10,000.
PARTIAL SURRENDER AND DECREASES IN FACE AMOUNT: EFFECT ON DEATH BENEFIT
A partial surrender or a decrease in face amount generally decreases the
death benefit. Upon a decrease in face amount or partial surrender, a partial
surrender charge will be deducted from Policy Value based on the amount of the
decrease or partial surrender. With a decrease in face amount, the death benefit
under a Policy would be reduced on the next Monthly Calculation Day. With a
partial surrender, the death benefit under a Policy would be reduced
immediately. A decrease in the death benefit may have certain tax consequences.
See "Federal Tax Considerations."
REQUESTS FOR DECREASE IN FACE AMOUNT
A Policyowner may request a decrease in face amount at any time after the
first Policy Year. Unless Phoenix agrees otherwise, the decrease must at least
equal $10,000 and the face amount remaining after the decrease must at least
equal $25,000. All face amount decrease requests must be In Writing and will be
effective on the first Monthly Calculation Day following the date Phoenix
approves the request. A partial surrender charge will be deducted from the
Policy Value based on the amount of the decrease, upon a decrease in face
amount. The charge will equal the applicable surrender charge that would apply
to a full surrender multiplied by a fraction (the decrease in face amount
divided by the face amount of the Policy before the decrease).
SURRENDERS
GENERAL
At any time during the lifetime of the Insured and while the Policy is In
Force, the Policyowner may partially or fully surrender the Policy by sending a
written release and surrender in a form satisfactory to VPMO, along with the
Policy if Phoenix so requires. The amount available for surrender is the Cash
Surrender Value at the end of the Valuation Period during which the surrender
request is received at VPMO.
Upon partial or full surrender, Phoenix generally will pay the amount
surrendered to the Policyowner within seven days after Phoenix receives the
Written Request for the surrender. Under certain circumstances, the surrender
payment may be postponed. See "General Provisions--Postponement of Payments."
For the federal tax effects of partial and full surrenders, see "Federal Tax
Considerations."
FULL SURRENDERS
If the Policy is being fully surrendered, the Policy itself must be returned
to VPMO, along with the written release and surrender of all claims in a form
satisfactory to Phoenix. A Policyowner may elect to have the amount paid in a
lump sum or under a payment option. See "Surrender Charge" and "Payment
Options."
PARTIAL SURRENDERS
A Policyowner may obtain a partial surrender of the Policy by requesting
that part of the Policy's Cash Surrender Value be paid. The Policyowner may do
this at any time during the lifetime of the Insured while the Policy is In Force
with a Written Request to VPMO. Phoenix reserves the right to require that the
Policy be returned before payment is made. A partial surrender will be effective
on the date the Written Request is received or, if required, the date the Policy
is received. Surrender proceeds may be applied under any of the payment options
described under "Payment of Proceeds--Payment Options."
Phoenix reserves the right not to allow partial surrenders of less than
$500. In addition, if the share of the Policy Value in any Subaccount or in the
GIA that would be reduced as a result of a partial surrender would, immediately
after the partial surrender, be less than $500, Phoenix reserves the right to
require that as part of any partial surrender, the entire remaining balance in
that Subaccount or the GIA be surrendered.
Upon a partial surrender the Policy Value will be reduced by the sum of the
following:
(i) The Partial Surrender Amount Paid. This amount comes from a reduction
in the Policy's share in the value of each Subaccount or the GIA based
on the allocation requested at the time of the partial surrender. If no
allocation request is made, the assessment to each Subaccount will be
made in the same manner as that provided for monthly deductions.
(ii)The Partial Surrender Fee. This fee is the lesser of $25 or 2% of the
partial surrender amount paid. The assessment to each Subaccount or the
GIA will be made in the same manner as provided for the partial
surrender amount paid.
(iii)A Partial Surrender Charge. This charge is equal to a pro rata portion
of the applicable surrender charge that would apply to a full
surrender, determined by multiplying the applicable surrender charge by
a fraction (equal to the partial surrender amount payable divided by
the result of subtracting the applicable surrender charge from the
Policy Value). This amount is assessed against the Subaccount or the
GIA in the same manner as provided for the partial surrender amount
paid.
The Cash Surrender Value will be reduced by the partial surrender amount
paid plus the partial surrender fee. The face amount of the Policy also will be
reduced by the same amount as the Policy Value is reduced as described above.
POLICY LOANS
While the Policy is In Force, a loan may be obtained against the Policy up
to the available loan value. The loan value on any day is 90% of the result of
subtracting the then remaining surrender charge from the Policy Value. The
available loan value is the loan value on the current day less any outstanding
Debt.
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The amount of any loan will be added to the loaned portion of the GIA and
subtracted from the Policy's share of the Subaccounts or the unloaned portion of
the GIA, based on the allocation requested at the time of the loan. The total
reduction will equal the amount added to the loaned portion of the GIA.
Allocations generally must be expressed in terms of whole percentages. If no
allocation request is made, the amount subtracted from the share of each
Subaccount or the unloaned portion of the GIA will be determined in the same
manner as provided for monthly deductions. Interest will be credited and the
loaned portion of the GIA will increase at an effective annual rate of 6%,
compounded daily and payable in arrears. At the end of each Policy Year and at
the time of any Debt repayment, interest credited to the loaned portion of the
GIA will be transferred to the unloaned portion of the GIA.
Debt may be repaid at any time during the lifetime of the Insured while the
Policy is In Force. Any Debt repayment received by Phoenix during a grace period
will be reduced to cover any overdue monthly deductions and only the balance
will be applied to reduce the Debt. Such balance, in excess of any outstanding
accrued loan interest, will be applied to reduce the loaned portion of the GIA
and will be transferred to the unloaned portion of the GIA to the extent that
loaned amounts taken from such Account have not previously been repaid.
Otherwise, such balance will be transferred among the Subaccounts as the
Policyowner requests upon repayment and, if no allocation request is made,
according to the most recent premium allocation schedule on file.
While there is outstanding Debt on the Policy, any payments received by
Phoenix for the Policy will be applied directly to reduce the Debt unless
specified as a premium payment by the Policyowner. Until the Debt is fully
repaid, additional Debt repayments may be made at any time during the lifetime
of the Insured while the Policy is In Force.
Failure to repay a Policy loan or to pay loan interest will not terminate
the Policy except as otherwise provided under the terms of the Policy concerning
the grace period and lapse.
The proceeds of Policy loans may be subject to federal income tax under
certain circumstances. See "Federal Tax Considerations."
In the future, Phoenix may not allow Policy loans of less than $500, unless
such loan is used to pay a premium on another Phoenix Policy.
The Policyowner will pay interest on the loan at an effective annual rate,
compounded daily and payable in arrears. For the first ten Policy Years or until
the Policyowner reaches age 65, whichever occurs first, the rate will be 8% and
thereafter the rate will be 7%. At the end of each Policy Year, any interest due
on the Debt will be treated as a loan and will be offset by a transfer from the
Policyowner's values to the value of the loaned portion of the GIA.
A Policy loan, whether or not repaid, has a permanent effect on the Policy
Value because the investment results of the Subaccounts or unloaned portion of
the GIA will apply only to the amount remaining in the Subaccounts or the
unloaned portion of the GIA. The longer a loan is outstanding, the greater the
effect is likely to be. The effect could be favorable or unfavorable. If the
Subaccounts or the unloaned portion of the GIA earn more than 6% per annum,
which is the annual interest rate for Funds held in the loaned portion of the
GIA, Policy Value does not increase as rapidly as it would have had no loan been
made. If the Subaccounts or the GIA earn less than 6% per annum, Policy Value is
greater than it would have been had no loan been made. A Policy loan, whether or
not repaid, also has an effect on the Policy's Death Benefit due to any
resulting differences in Cash Surrender Value.
LAPSE
Unlike conventional life insurance policies, the payment of the Issue
Premium, no matter how large, or the payment of additional premiums will not
necessarily continue the Policy In Force to its Maturity Date.
If on any Monthly Calculation Day during the first 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 Phoenix mailed
written notice to the Policyowner. If a premium payment for the additional
amount is received by Phoenix during the grace period, any amount of premium
over what is required to prevent lapse will be allocated among the Subaccounts
of the VUL Account or to the GIA in accordance with the then current premium
allocation schedule. In determining the amount of "excess" premium to be applied
to the Subaccounts or the GIA, Phoenix will deduct the premium tax and the
amount needed to cover any monthly deductions made during the grace period. If
the Insured dies during the grace period, the death benefit will equal the
amount of the death benefit immediately prior to the commencement of the grace
period.
PAYMENT OF PREMIUMS DURING PERIOD OF DISABILITY
A Policyholder also may elect a Waiver of Premium Rider. This rider provides
for the waiver of certain premium payments under the Policy under certain
conditions during a period of total disability of the Insured. Under its terms,
the specified premium will be waived upon Phoenix's receipt of proof that the
Insured is totally disabled and that the disability occurred while the rider was
In Force. The terms of this rider may vary by state.
ADDITIONAL INSURANCE OPTIONS
While the Policy is In Force and the Policyowner is insurable, the
Policyowner will have the option to purchase additional insurance on the same
Insured with the same guaranteed rates as the Policy without being assessed an
issue expense charge. Phoenix will require evidence of insurability and charges
will be adjusted for the Insured's new Attained Age and any change in risk
classification. However, if elected on the application, the Policyowners may, at
predetermined future dates, purchase additional insurance protection on the same
Insured without evidence of insurability. See "Purchase Protection Plan Riders."
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In addition, once each Policy Year, a Policyowner may request an increase in
face amount. This request should be made within 90 days prior to the Policy
Anniversary and is subject to an issue expense charge of $3 per $1,000 of
increase in face amount, up to a maximum of $150, and to Phoenix's receipt of
adequate evidence of insurability. A Right to Cancel Period as described in "The
Policy" section of this Prospectus applies to each increase in face amount.
ADDITIONAL RIDER BENEFITS
A Policyowner may elect additional benefits under a Policy. These benefits
are cancellable by the Policyowner at any time. A charge will be deducted
monthly from your Policy Value for each additional rider benefit chosen except
where noted below. Riders listed below that specify "no charge" are
automatically included in your Policy. More details will be included in the form
of a Policy rider if any of these benefits is chosen. The following benefits are
currently available; however, additional riders may be available as described in
the Policy.
O DISABILITY WAIVER OF SPECIFIED PREMIUM RIDER
Phoenix waives the specified premium if the Insured becomes totally
disabled and the disability continues for at least six months. Premiums
will be waived to the Policy Anniversary nearest the Insured's 65th
birthday (provided that the disability continues), unless premiums have
been waived continuously during the entire five years prior to such date
in which case the waiver will continue beyond that date. The premium
will be waived upon Phoenix's receipt of notice that the Insured is
totally disabled and that the disability occurred while the rider was In
Force. The terms may vary by State.
O ACCIDENTAL DEATH BENEFIT RIDER
An additional death benefit will be paid if the Insured dies from bodily
injury that results from an accident if the Insured dies no later than
90 days after injury; and before the Policy Anniversary nearest the
Insured's 75th birthday.
O DEATH BENEFIT PROTECTION RIDER
The purchase of this rider provides that the death benefit will be
guaranteed. The amount of the guaranteed death benefit is equal to the
initial face amount, or the face amount that later may be increased or
decreased by the Policyholder provided that certain minimum premiums are
paid. Unless Phoenix agrees otherwise, the initial face amount and the
face amount remaining after any decrease must at least equal $50,000 and
the minimum issue age of the Insured is 20. Three (3) Death Benefit
Guarantee periods are available in all states except New York. The
minimum premium required to maintain the guaranteed death benefit is
based on the length of the guarantee period as elected on the
application. The three available guarantee periods are:
Level: Expiry Date of Death Benefit Guaranteed, the later of:
1 The Policy Anniversary nearest the Insured's 70th
birthday or the 7th Policy Year
2 The Policy Anniversary nearest the Insured's 80th
birthday or the 10th Policy Year
3 The Policy Anniversary nearest the Insured's 95th birthday.
Level 1 or 2 guarantees may be extended provided that the Policy's Cash
Surrender Value is sufficient and the Policyowner pays the new Minimum Required
Premium.
For Policies issued in New York, two guarantee periods are available:
1 The Policy Anniversary nearest the Insured's 75th birthday or the
10th Policy Year
2 The Policy Anniversary nearest the Insured's 95th birthday.
O FACE AMOUNT OF INSURANCE INCREASE RIDER
Under the terms of this rider, any time after the first Policy
Anniversary, a Policyholder may request an increase in the face amount
of insurance provided under the Policy. Requests for face amount
increases must be made In Writing, and Phoenix requires additional
evidence of insurability. The effective date of the increase will
generally be the Policy Anniversary following approval of the increase.
The increase may not be less than $25,000 and no increase will be
permitted after the Insured's age 75. The charge for the increase is $3
per thousand of face amount increase requested subject to a maximum of
$150. No additional monthly administration charge will be assessed for
face amount increases. Phoenix will deduct any charges associated with
the increase (the increases in cost of insurance charges), from the
Policy Value, whether or not the Policyowner pays an additional premium
in connection with the increase. The surrender charge applicable to the
Policy also will increase. At the time of the increase, the Cash
Surrender Value must be sufficient to pay the monthly deduction on that
date, or additional premiums will be required to be paid on or before
the effective date. Also, a new Right to Cancel Period (see "The
Policy--Right to Cancel Period") will be established for the amount of
the increase. For a discussion of possible implications of a material
change in the Policy resulting from the increase, see "Material Change
Rules." There is no charge for this rider.
O WHOLE LIFE EXCHANGE OPTION RIDER
This rider permits the Policyowner to exchange the Policy for a fixed
benefit whole life policy at the later of age 65 or Policy Year 15.
There is no charge for this rider.
O PURCHASE PROTECTION PLAN RIDER
Under this rider a Policyowner may, at predetermined future dates,
purchase additional insurance protection without evidence of
insurability.
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O LIVING BENEFITS RIDER
Under certain conditions, in the event of the terminal illness of the
Insured, an accelerated payment of up to 75% of the Policy's death
benefit (up to a maximum of $250,000) is available. The minimum face
amount of the Policy after any such accelerated benefit payment is
$10,000. There is no charge for this rider.
INVESTMENTS OF THE VUL ACCOUNT
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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
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position and a low stock market valuation at the time of purchase which are
believed to offer the possibility of increase in value.
WANGER ADVISORS TRUST
Certain Subaccounts of the VUL Account invest in corresponding Series of the
Wanger Advisors Trust. The following Series are currently available through the
Policies:
WANGER U.S. SMALL CAP ("U.S. SMALL CAP") SERIES: The investment objective of
the U.S. Small Cap Series is to provide long-term growth. The U.S. Small Cap
Series invests primarily in securities of U.S. companies with total common stock
market capitalization of less than $1 billion.
WANGER INTERNATIONAL SMALL CAP ("INTERNATIONAL SMALL CAP") SERIES: The
investment objective of the International Small Cap Series is to provide
long-term growth. The International Small Cap Series invests primarily in
securities of non-U.S. companies with total common stock market capitalization
of less than $1 billion.
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 Home Life 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
invest in the Fund(s) simultaneously. Although neither Phoenix nor the Fund(s)
currently foresees any such disadvantages either to variable life insurance
Policyowners or to variable annuity Contract Owners, the Funds' trustees intend
to monitor events in order to identify any material conflicts between variable
life insurance Policyowners and variable annuity Contract Owners and to
determine what action, if any, should be taken in response thereto. Material
conflicts could result from, for example, (1) changes in state insurance laws,
(2) changes in federal income tax laws, (3) changes in the investment management
of any portfolio of the Fund(s) or (4) differences in voting instructions
between those given by variable life insurance Policyowners and those given by
variable annuity Contract Owners. Phoenix will, at its own expense, remedy such
material conflict including, if necessary, segregating the assets underlying the
variable life insurance policies and the variable annuity contracts and
establishing a new registered investment company.
INVESTMENT ADVISERS
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 Funds are automatically reinvested in
shares of the Funds at their net asset value on the date of distribution; all
capital gains distributions of the Funds, if any, are likewise reinvested at the
net asset value on the record date. Phoenix redeems Fund shares at net asset
value to the extent necessary to make payments under the Policy.
SUBSTITUTION OF INVESTMENTS
Phoenix reserves the right, subject to compliance with the law as currently
applicable or subsequently changed, to make additions to, deletions from, or
substitutions for the investments held by the VUL Account. In the future,
Phoenix may establish additional Subaccounts within the VUL Account, each of
which will invest solely in shares of a designated portfolio of the Funds with a
specified investment objective. These portfolios will be established if, and
when, in the sole discretion of Phoenix, marketing needs and investment
conditions warrant, and will be made available under existing Policies to the
extent and on a basis to be determined by Phoenix.
If shares of any of the portfolios of the Funds should no longer be
available for investment, or if in the judgment of Phoenix's management further
investment in shares of any of the portfolios should become inappropriate in
view of the objectives of the Policy, then Phoenix may substitute shares of
another mutual fund for shares already purchased, or to be purchased in the
future, under the Policy. No substitution of mutual fund shares held by the VUL
Account may take place without prior approval of the SEC, and prior notice to
the Policyowner. In the event of a substitution, the Policyowner will be given
the option of transferring the Policy Value of the Subaccount in which the
substitution is to occur to another Subaccount.
CHARGES AND DEDUCTIONS
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Charges are deducted in connection with the Policy to compensate Phoenix
for: (1) incurring expenses in distributing the Policy; (2) issuing the Policy;
(3) premium taxes incurred on premiums received; (4) providing the insurance
benefits set forth in the Policy; and (5) assuming certain risks in connection
with the Policy. The nature and amount of these charges are described more fully
below.
1. MONTHLY DEDUCTION
A charge is deducted monthly from the Policy Value under a Policy ("monthly
deduction") to pay: the cost of insurance provided under the Policy, the cost of
any rider benefits provided, any unpaid balance of the issue expense charge, and
an administrative charge. This administrative charge is currently set at $5 per
month but it is guaranteed not to exceed $10 per month. The monthly deduction is
deducted on each Monthly Calculation Day. It is allocated among the Subaccounts
of the VUL Account and the unloaned portion of the GIA based on the allocation
schedule for monthly deductions specified by the applicant in the application
for a Policy or as later changed by the Policyowner. In the event that the
Policy's share in the value of the Subaccounts or the unloaned portion of the
GIA is insufficient to permit the withdrawal of the full monthly deduction, the
remainder will be taken on a proportionate basis from the Policy's share of each
of the other Subaccounts and the unloaned portion of the GIA. The number of
Units deducted will be determined by dividing the portion of the monthly
deduction allocated to each Subaccount or to the unloaned portion of the GIA by
the Unit value on the Monthly Calculation Day. Because portions of the monthly
deduction, such as the cost of insurance, can vary from month to month, the
monthly deduction itself may vary in amount from month to month.
(A) ISSUE EXPENSE CHARGE. A cost-based issue administration charge of $150
is assessed on a pro rata basis in equal monthly installments over a
12-month period to compensate Phoenix for underwriting and start-up
expenses in connection with issuing a Policy. Phoenix may reduce or
eliminate the issue expense charge for Policies issued under group or
sponsored arrangements. Generally, administrative costs per Policy vary
with the size of the group or sponsored arrangement, its stability as
indicated by its term of existence and certain characteristics of its
members, the purposes for which the Policies are purchased and other
factors. The amounts of any reductions will be considered on a
case-by-case basis and will reflect the reduced administration costs
expected as a result of sales to a particular group or sponsored
arrangement.
(B) COST OF INSURANCE. In order to calculate the cost of insurance charge,
Phoenix multiplies the applicable cost of insurance rate by the
difference between the death benefit selected
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(death benefit Option 1 if no selection is made) and the Policy Value.
Generally, cost of insurance rates are based on the sex, Attained Age
and risk class of the Insured. However, in certain states and for
policies issued in conjunction with certain qualified plans, cost of
insurance rates are not based on sex. The actual monthly cost of
insurance rates are based on Phoenix's expectations of future mortality
experience. They will not, however, be greater than the guaranteed cost
of insurance rates set forth in the Policy. These guaranteed maximum
rates are equal to 100% of the 1980 Commissioners Standard Ordinary
("CSO") Mortality Table, with appropriate adjustment for the Insured's
risk classification. Any change in the cost of insurance rates will
apply to all persons of the same sex, insurance age and risk class whose
Policies have been In Force for the same length of time. The risk class
of an Insured may affect the cost of insurance rate. Phoenix currently
places Insureds into a standard risk class or a risk class involving a
higher mortality risk, depending upon the health of the Insured as
determined by medical information that Phoenix requests. In an otherwise
identical Policy, Insureds in the standard risk class will have a lower
cost of insurance than those in the risk class with the higher mortality
risk. The standard risk class also is divided into three categories:
smokers and nonsmokers and those who have never smoked. Nonsmokers
generally will incur a lower cost of insurance than similarly situated
Insureds who smoke.
2. PREMIUM TAXES
Various states and subdivisions impose a tax on premiums received by
insurance companies. Premium taxes vary from state to state. The assessment made
for each premium paid is equal to the tax assessed by the state in which the
Policyowner resides according to Phoenix's records at the time of the payment.
Currently, the taxes imposed by states on premiums range from 0.75% to 4% of
premiums paid. Moreover, certain municipalities in Louisiana, Kentucky and South
Carolina also impose taxes on premiums paid, in addition to the state taxes
imposed by these states. The premium tax charge represents an amount Phoenix
considers necessary to pay all premium taxes imposed by such states and any
subdivisions thereof, and Phoenix does not expect to derive a profit from this
charge. These taxes are deducted from the Issue Premium, and from each
subsequent premium payment.
3. MORTALITY AND EXPENSE RISK CHARGE
Phoenix will deduct a daily charge from the VUL Account at an annual rate of
0.80% of the average daily net assets of the VUL Account to compensate for
certain risks assumed in connection with the Policy. This charge is not deducted
from the GIA.
The mortality risk assumed by Phoenix is that Insureds may live for a
shorter time than projected because of inaccuracies in that projecting process
and, accordingly, that an aggregate amount of death benefits greater than that
projected will be payable. The expense risk assumed is that expenses incurred in
issuing the Policies may exceed the limits on administrative charges set in the
Policies. If the expenses do not increase to an amount in excess of the limits,
or if the mortality projecting process proves to be accurate, Phoenix may profit
from this charge. Phoenix also assumes risks with respect to other contingencies
including the incidence of Policy loans, which may cause Phoenix to incur
greater costs than anticipated when designing the Policies. To the extent
Phoenix profits from this charge, it may use those profits for any proper
purpose, including the payment of sales expenses or any other expenses that may
exceed income in a given year.
4. INVESTMENT MANAGEMENT CHARGE
As compensation for their investment management services to the Fund, the
Advisers are entitled to fees, payable monthly and based on an annual percentage
of the average aggregate daily net asset values of each Series.
These Fund charges and other expenses are described more fully in the
accompanying Fund prospectuses.
5. OTHER CHARGES
SURRENDER CHARGE
During the first 10 Policy Years, there is a difference between the amount
of Policy Value and the amount of Cash Surrender Value of the Policy. This
difference is the surrender charge, consisting of a contingent deferred sales
charge designed to recover expenses for the distribution of Policies that are
terminated by surrender before distribution expenses have been recouped, and a
contingent deferred issue charge designed to recover expenses for the
administration of Policies that are terminated by surrender before
administrative expenses have been recouped. These are contingent charges because
they are paid only if the Policy is surrendered (or the face amount is reduced
or the Policy lapses) during the first 10 Policy Years. They are deferred
charges because they are not deducted from premiums.
In Policy Years one through ten, the full surrender charge as described
below will apply if the Policyowner either surrenders the Policy for its Cash
Surrender Value or lets the Policy lapse. The applicable surrender charge in any
Policy Month is the full surrender charge minus any surrender charges that have
been previously paid. There is no surrender charge after the 10th Policy Year.
The maximum surrender charge that a Policyowner could pay while he or she owns
the Policy is equal to either A plus B (as defined below) or the amount shown in
the table on Schedule Page 4 of the Policy, whichever is less.
A (the contingent deferred sales charge) is equal to:
1) 30% of all premiums paid (up to and including the amount stated on
Schedule Page 4 of the Policy, which is calculated according to a
formula contained in a SEC rule); plus
2) 10% of all premiums paid in excess of this amount but not greater than
twice this amount; plus
3) 9% of all premiums paid in excess of twice this amount.
B (the contingent deferred issue charge) is equal to:
$5 per $1,000 of initial face amount.
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As an example, the following illustrates the maximum surrender charge on a
$100,000 Policy for a male age 35 who has never smoked who has paid $3,000 in
premium payments, and who surrenders the Policy in the 70th Policy Month.
Schedule Page 4 of the Policy would show that the maximum surrender charge to be
paid would be equal to either A plus B (shown below) or the amount shown in the
chart in the Policy (also shown below), whichever is less:
A is equal to:
1) 30% of all premiums paid, up to $1,058.45 (equals $317.54); plus
2) 10% of all premiums paid in excess of $1,058.45 but not greater than
$2,116.90 (equals $105.83); plus
3) 9% of all premiums paid in excess of $2,116.90 (equals $79.48); plus
B which is equal to $500.
Therefore A plus B is equal to $1,002.87.
The chart that would be shown in the Policy is reproduced below:
MAXIMUM SURRENDER CHARGE TABLE
------------------------------
POLICY SURRENDER POLICY SURRENDER POLICY SURRENDER
MONTH CHARGE MONTH CHARGE MONTH CHARGE
----- ------ ----- ------ ----- ------
1-60 $1029.22 80 $823.38 100 $531.90
61 1018.93 81 813.09 101 516.26
62 1008.64 82 802.80 102 500.61
63 998.35 83 792.50 103 484.97
64 988.06 84 782.21 104 469.33
65 977.76 85 766.57 105 453.68
66 967.47 86 750.92 106 438.04
67 957.18 87 735.28 107 422.39
68 946.89 88 719.63 108 406.75
69 936.59 89 703.99 109 372.85
70 926.30 90 688.35 110 338.96
71 916.01 91 672.70 111 305.06
72 905.72 92 657.06 112 271.17
73 895.43 93 641.41 113 237.27
74 885.13 94 625.77 114 203.37
75 874.84 95 610.12 115 169.48
76 864.55 96 594.48 116 135.58
77 854.26 97 578.84 117 101.69
78 843.96 98 563.19 118 67.79
79 833.67 99 547.55 119 33.90
120 .00
If the surrender occurred in Policy Month 70, the Policyowner would pay the
lesser of $1002.87 (as computed above) or $926.30 (amount in table above). This
Policyowner would pay a surrender charge of $926.30. Phoenix may reduce the
surrender charge for Policies issued under group or sponsored arrangements. The
amounts of reductions will be considered on a case-by-case basis and will
reflect the reduced costs to Phoenix expected as a result of sales to a
particular group or sponsored arrangement.
PARTIAL SURRENDER FEE
A fee equal to the lesser of $25 or 2% of the amount withdrawn from the
Policy is deducted from the Policy Value upon a partial surrender of the Policy
to recover the actual costs of processing the partial surrender request. The
assessment to each Subaccount or to the GIA will be made in the same manner as
provided for the partial surrender amount paid. That is, that the Policy's share
in the value of each Subaccount or the GIA will be reduced based on the
allocation made at the time of the partial surrender. If no allocation request
is made, the assessment to each Subaccount and to the GIA will be made in the
same manner as provided for monthly deductions.
PARTIAL SURRENDER CHARGE
A charge as described below is deducted from the Policy Value upon a partial
surrender of the Policy. The charge is equal to a pro rata portion of the
applicable surrender charge that would apply to a full surrender, determined by
multiplying the applicable surrender charge by a fraction (equal to the partial
surrender amount payable divided by the result of subtracting the applicable
surrender charge from the Policy Value). This amount is assessed against the
Subaccounts or the GIA in the same manner as provided for with respect to the
partial surrender amount paid.
A partial surrender charge also is deducted from Policy Value upon a
decrease in face amount. The charge is equal to the applicable surrender charge
multiplied by a fraction (equal to the decrease in face amount divided by the
face amount of the Policy prior to the decrease).
TAXES
Currently no charge is made to the VUL Account for federal income taxes that
may be attributable to the VUL Account. Phoenix may, however, make such a charge
in the future. Charges for other taxes, if any, attributable to the VUL Account
also may be made.
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.
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SUICIDE
If the Insured commits suicide within two years after the Policy's Date of
Issue, Phoenix will pay only the Policy Value adjusted by the addition of any
monthly deductions and other fees and charges made under the Policy and the
subtraction of any Debt owed to Phoenix under the Policy.
INCONTESTABILITY
Phoenix cannot contest this Policy or any attached rider after it has been
In Force during the lifetime of the Insured for two years from the Policy Date.
CHANGE OF OWNER OR BENEFICIARY
The Beneficiary, as named in the Policy application or subsequently changed,
will receive the Policy benefits at the Insured's death. If the named
Beneficiary dies before the Insured, the contingent Beneficiary, if named,
becomes the Beneficiary. If no Beneficiary survives the Policyowner, the
benefits payable at the Insured's death will be paid to the Policyowner's
estate.
As long as the Policy is In Force, the Policyowner and the Beneficiary may
be changed by Written Request, satisfactory to Phoenix. A change in Beneficiary
will take effect as of the date the notice is signed, whether or not the Insured
is living when the notice is received by Phoenix. Phoenix will not, however, be
liable for any payment made or action taken before receipt of the notice.
ASSIGNMENT
The Policy may be assigned. Phoenix will not be bound by the assignment
until a written copy has been received and will not be liable with respect to
any payment made prior to receipt. Phoenix assumes no responsibility for
determining whether an assignment is valid.
MISSTATEMENT OF AGE OR SEX
If the age or sex of the Insured has been misstated, the death benefit will
be adjusted based on what the cost of insurance charge for the most recent
monthly deduction would have purchased based on the correct age and sex.
SURPLUS
Policyowners may share in divisible surplus of Phoenix to the extent
determined annually by the Phoenix Board of Directors. However, it is not
currently anticipated that the Board will authorize these payments since
Policyowners will be participating directly in investment results.
PAYMENT OF PROCEEDS
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SURRENDER AND DEATH BENEFIT PROCEEDS
Death benefit proceeds and the proceeds of full or partial surrenders will
be processed at Unit values next computed after Phoenix receives the request for
surrender or due proof of death, provided such request is complete and in good
order. Payment of surrender or death proceeds usually will be made in one
lump sum within seven days, unless another payment option has been elected.
Payment of the death proceeds, however, may be delayed if the claim for payment
of the death proceeds needs to be investigated; e.g., to ensure payment of the
proper amount to the proper payee. Any such delay will not be beyond that
reasonably necessary to investigate such claims consistent with insurance
practices customary in the life insurance industry. In addition, under certain
conditions, in the event of the terminal illness of the Insured, an accelerated
payment of up to 75% of the Policy's Death Benefit (up to a maximum of
$250,000), is available under the Living Benefits Rider. The minimum face amount
remaining after any such accelerated benefit payment is $10,000.
While the Insured is living, the Policyowner may elect a payment option for
payment of the death proceeds to the Beneficiary. The Policyowner may revoke or
change a prior election, unless such right has been waived. The Beneficiary may
make or change an election prior to payment of the death proceeds, unless the
Policyowner has made an election which does not permit such further election or
changes by the Beneficiary.
A written form satisfactory to Phoenix is required to elect, change or
revoke a payment option.
The minimum amount of surrender or death proceeds that may be applied under
any option is $1,000.
If the Policy is assigned as collateral security, Phoenix will pay any
amount due the assignee in one lump sum. Any remaining proceeds will remain
under the option elected.
PAYMENT OPTIONS
All or part of the surrender or death proceeds of a Policy may be applied
under one or more of the following payment options or such other payment options
or alternative versions of the options listed as Phoenix may choose to make
available in the future.
OPTION 1--LUMP SUM.
Payment in one lump sum.
OPTION 2--LEFT TO EARN INTEREST.
A payment of interest during the payee's lifetime on the amount payable as a
principal sum. Interest rates are guaranteed to be at least 3% per year.
OPTION 3--PAYMENT FOR A SPECIFIC PERIOD.
Equal income installments are paid for a specified period of years whether
the payee lives or dies. The first payment will be on the date of settlement.
The assumed interest rate on the unpaid balance is guaranteed not to be less
than 3% per year.
OPTION 4--LIFE ANNUITY WITH SPECIFIED PERIOD CERTAIN.
Equal installments are paid until the later of: (A) The death of the payee;
(B) The end of the period certain. The first payment will be on the date of
settlement. The period certain must be chosen at the time 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
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annuity providing a period certain of 20 years or more is calculated using an
interest rate guaranteed to be no less than 3 1/4% per year.
OPTION 5--LIFE ANNUITY.
Equal installments are paid only during the lifetime of the payee. The first
payment will be on the date of settlement. Any life annuity as may be provided
under Option 5 is calculated using an interest rate guaranteed to be no less
than 3 1/2% per year.
OPTION 6--PAYMENTS OF A SPECIFIED AMOUNT.
Equal installments of a specified amount, out of the principal sum and
interest on that sum, are paid until the principal sum remaining is less than
the amount of the installment. When that happens, the principal sum remaining
with accrued interest will be paid as a final payment. The first payment will be
on the date of settlement. The payments will include interest on the principal
sum remaining at a rate guaranteed to be at least equal 3% per year. This
interest will be credited at the end of each year. If the amount of interest
credited at the end of the year exceeds the income payments made in the last 12
months, that excess will be paid in one sum on the date credited.
OPTION 7--JOINT SURVIVORSHIP ANNUITY WITH 10-YEAR PERIOD CERTAIN.
The first payment will be on the date of settlement. Equal income
installments are paid until the latest of: (A) the end of the 10-year period
certain; (B) the death of the Insured; (C) the death of the other named
annuitant. The other annuitant must be named at the time this option is elected
and cannot later be changed. The other annuitant must have an Attained Age of at
least 40. Any joint survivorship annuity as may be provided under this option is
calculated using an interest rate guaranteed to be no less than 3 3/8% per year.
For additional information concerning the above payment options, see the
Policy.
FEDERAL TAX CONSIDERATIONS
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INTRODUCTION
The ultimate effect of federal income taxes on values under the VUL Account
and on the economic benefit to the Policyowner or Beneficiary depends on
Phoenix's tax status and upon the tax status of the individual concerned. The
discussion contained herein is general in nature and is not intended as tax
advice. For complete information on federal and state tax considerations, a
qualified tax adviser should be consulted. No attempt is made to consider any
estate and inheritance taxes, or any state, local or other tax laws. Because the
discussion herein is based upon Phoenix's understanding of federal income tax
laws as they are currently interpreted, Phoenix cannot guarantee the tax status
of any Policy. No representation is made regarding the likelihood of
continuation of current federal income tax laws, Treasury regulations or of the
current interpretations by the Internal Revenue Service (the "IRS"). Phoenix
reserves the right to make changes to the Policy in order to assure that it will
continue to qualify as a life insurance contract for federal income tax
purposes.
PHOENIX'S TAX STATUS
Phoenix is taxed as a life insurance company under the Internal Revenue Code
of 1986 (the "Code"), as amended. For federal income tax purposes, neither the
VUL Account nor the GIA is a separate entity from Phoenix and their operations
form a part of Phoenix.
Investment income and realized capital gains on the assets of the VUL
Account are reinvested and taken into account in determining the value of the
VUL Account. Investment income of the VUL Account, including realized net
capital gains, is not taxed to Phoenix. Due to Phoenix's tax status under
current provisions of the Code, no charge currently will be made to the VUL
Account for Phoenix's federal income taxes which may be attributable to the VUL
Account. Phoenix reserves the right to make a deduction for taxes if the federal
tax treatment of Phoenix is determined to be other than what Phoenix currently
believes it to be, if changes are made affecting the tax treatment to Phoenix of
variable life insurance contracts or if changes occur in Phoenix's tax status.
If imposed, such charge would be equal to the federal income taxes attributable
to the investment results of the VUL Account.
POLICY BENEFITS
DEATH BENEFIT PROCEEDS. The Policy, whether or not it is a modified
endowment contract (see the discussion on modified endowment contracts below),
should be treated as meeting the definition of a life insurance contract for
federal income tax purposes, under Section 7702 of the Code. As such, the death
benefit proceeds thereunder should be excludable from the gross income of the
Beneficiary under Code Section 101(a)(1). Also, the Policyowner should not be
deemed to be in constructive receipt of the Cash Value, including increments
thereon. See, however, the sections below on possible taxation of amounts
received under the Policy, via full surrender, partial surrender or loan. In
addition, a benefit paid under a Living Benefit Rider may be taxable as income
in the year of receipt.
Code Section 7702 imposes certain conditions with respect to premiums
received under a Policy. Phoenix intends to monitor the premiums to assure
compliance with such conditions. However, in the event that the premium
limitation is exceeded during the year, Phoenix may return the excess premium,
with interest, to the Policyowner within 60 days after the end of the Policy
Year, and maintain the qualification of the Policy as life insurance for federal
income tax purposes.
FULL SURRENDER. Upon full surrender of a Policy for its Cash Value, the
excess, if any, of the Cash Value (unreduced by any outstanding indebtedness)
over the premiums paid will be treated as ordinary income for federal income tax
purposes. The full surrender of a Policy which is a modified endowment contract
may result in the imposition of an additional 10% tax on any income received.
PARTIAL SURRENDER. If the Policy is a modified endowment contract, partial
surrenders are fully taxable to the extent of income in the Policy and are
possibly subject to an additional 10% tax. See the 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
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tax, except to the extent such proceeds exceed the total amount of premiums
paid but not previously recovered. Phoenix suggests you consult with your tax
adviser in advance of a proposed decrease in death benefits or a partial
surrender as to the portion, if any, which would be subject to tax, and in
addition as to the impact such partial surrender might have under the rules
affecting modified endowment contracts.
LOANS. Phoenix believes that any loan received under a Policy will be
treated as indebtedness of the Policyowner. If the Policy is a modified
endowment contract, loans are fully taxable to the extent of income in the
Policy and are possibly subject to an additional 10% tax. See the discussion on
modified endowment contracts below. If the Policy is not a modified endowment
contract, Phoenix believes that no part of any loan under a Policy will
constitute income to the Policyowner.
The deductibility by the Policyowner of loan interest under a Policy may be
limited under Code Section 264, depending on the circumstances. Any Policyowner
intending to fund premium payments through borrowing should consult a tax
adviser with respect to the tax consequences thereof. Under the "personal"
interest limitation provisions of the Code, interest on Policy loans used for
personal purposes is not tax deductible. Other rules may apply to allow all or
part of the interest expense as a deduction if the loan proceeds are used for
"trade or business" or "investment" purposes. See your tax adviser for further
guidance.
BUSINESS-OWNED POLICIES
If the Policy is owned by a business or a corporation, the Code may impose
additional restrictions. The Code limits the interest deduction on
business-owned Policy loans and may impose tax upon the inside buildup of
corporate-owned life insurance policies through the corporate alternative
minimum tax.
MODIFIED ENDOWMENT CONTRACTS
GENERAL. Pursuant to Code Section 72(e), loans and other amounts received
under modified endowment contracts will in general be taxed to the extent of
accumulated income (generally, the excess of Cash Value over premiums paid).
Policies are modified endowment contracts if they meet the definition of life
insurance, but fail the 7-pay test. This test essentially provides that the
cumulative premiums paid under the Policy at any time during the Policy's first
seven years cannot exceed the sum of the net level premiums that would have been
paid on or before that time had the Policy provided for paid-up future benefits
after the payment of seven level annual premiums. In addition, a modified
endowment contract includes any life insurance contract that is received in
exchange for a modified endowment contract. Premiums paid during a Policy Year
that are returned by Phoenix (with interest) within 60 days after the end of the
Policy Year will not cause the Policy to fail the 7-pay test.
REDUCTION IN BENEFITS DURING THE FIRST SEVEN YEARS. If there is a reduction
in benefits during the first seven Policy Years, the premiums are redetermined
for purposes of the 7-pay test as if the Policy originally had been issued at
the reduced death benefit level and the new limitation is applied to the
cumulative amount paid for each of the first seven Policy Years.
DISTRIBUTIONS AFFECTED. If a Policy fails to meet the 7-pay test, it is
considered a modified endowment contract only as to distributions in the year in
which the death benefit reduction takes effect and all subsequent Policy Years.
However, distributions made in anticipation of such failure (there is a
presumption that distributions made within two years prior to such failure were
"made in anticipation") also are considered distributions under a modified
endowment contract. If the Policy satisfies the 7-pay test for seven years,
distributions and loans will generally not be subject to the modified endowment
contract tax rules.
PENALTY TAX. Any amounts taxable under the modified endowment contract rule
will be subject to an additional 10% excise tax, with certain exceptions. This
additional tax will not apply in the case of distributions: (i) made on or after
the taxpayer attains age 592; (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.
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LIMITATIONS ON UNREASONABLE MORTALITY AND EXPENSE CHARGES
The Code imposes limitations on unreasonable mortality and expense charges
for purposes of ensuring that a Policy qualifies as life insurance. The
mortality charges taken into account to calculate permissible premium levels may
not exceed those charges required to be used in determining the federal income
tax reserve for the Policy, unless Treasury regulations prescribe a higher level
of charge. In addition, the expense charges taken into account under the
guideline premium test are required to be reasonable, as defined by the Treasury
regulations. Phoenix intends to comply with the limitations in calculating the
premium it is permitted to receive from the Policyowner.
QUALIFIED PLANS
A Policy may be used in conjunction with certain qualified plans. Since the
rules governing such use are complex, a purchaser should not use the Policy in
conjunction with a qualified plan until he has consulted a competent pension
consultant or tax adviser.
DIVERSIFICATION STANDARDS
To comply with the Diversification Regulations under Code Section 817(h),
("Diversification Regulations") each Series of the Funds is required to
diversify its investments. The Diversification Regulations generally require
that on the last day of each quarter of a calendar year no more than 55% of the
value of 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 Funds will
be tested for compliance with the percentage limitations. For purposes of these
diversification rules, all securities of the same issuer are treated as a single
investment, but each United States government agency or instrumentality is
treated as a separate issuer.
The general diversification requirements are modified if any of the assets
of the VUL Account are direct obligations of the Treasury. In this case, there
is no limit on the investment that may be made in Treasury securities, and for
purposes of determining whether assets other than Treasury securities are
adequately diversified, the generally applicable percentage limitations are
increased based on the value of the VUL Account's investment in Treasury
securities. Notwithstanding this modification of the general diversification
requirements, the portfolios of the Funds will be structured to comply with the
general diversification standards because they serve as an investment vehicle
for certain variable annuity contracts which must comply with these standards.
In connection with the issuance of the Diversification Regulations, the
Treasury announced that such regulations do not provide guidance concerning the
extent to which Policyowners may direct their investments to particular
divisions of a separate account. It is possible that a revenue ruling or other
form of administrative pronouncement in this regard may be issued in the near
future. It is not clear, at this time, what such a revenue ruling or other
pronouncement will provide. It is possible that the Policy may need to be
modified to comply with such future Treasury announcements. For these reasons,
Phoenix reserves the right to modify the Policy, as necessary, to prevent the
Policyowner from being considered the Owner of the assets of the VUL Account.
Phoenix intends to comply with the Diversification Regulations to assure
that the Policies continue to qualify as a life insurance contract for federal
income tax purposes.
CHANGE OF OWNERSHIP OR INSURED OR ASSIGNMENT
Changing the Policyowner or the Insured or an exchange or assignment of the
Policy may have tax consequences depending on the circumstances. Code Section
1035 provides that a life insurance Policy can be exchanged for another life
insurance contract, without recognition of gain or loss, assuming that no money
or other property is received in the exchange, and that the policies relate to
the same Insured. If the surrendered Policy is subject to a Policy loan, this
may be treated as the receipt of money on the exchange. Phoenix recommends that
any person contemplating such actions seek the advice of a qualified tax
consultant.
OTHER TAXES
Federal estate tax, state and local estate, inheritance and other tax
consequences of ownership or receipt of Policy proceeds depend on the
circumstances of each Policyowner or Beneficiary. Phoenix does not make any
representations or guarantees regarding the tax consequences of any Policy with
respect to these types of taxes.
VOTING RIGHTS
- -------------------------------------------------------------------------------
THE FUNDS
Phoenix will vote the Funds' shares held by the Subaccounts of the VUL
Account at any regular and special meetings of shareholders of the Funds, a
Massachusetts business trust. To the extent required by law, such voting will be
in accordance with instructions received from the Policyowner. However, if the
1940 Act or any regulation thereunder should be amended or if the present
interpretation thereof should change, and as a result Phoenix determines that it
is permitted to vote the Funds' shares at its own discretion, it may elect to do
so.
The number of votes that a Policyowner has the right to cast will be
determined by applying the Policyowner's percentage interest in a Subaccount to
the total number of votes attributable to the Subaccount. In determining the
number of votes, fractional shares will be recognized.
Funds' shares held in a Subaccount for which no timely instructions are
received, and Funds' shares which are not otherwise attributable to
Policyowners, will be voted by Phoenix in proportion to the voting instructions
that are received with respect to all Policies participating in that Subaccount.
Voting instructions to abstain on any item to be voted upon will be applied to
reduce the votes eligible to be cast by Phoenix.
Each Policyowner will receive proxy materials, reports and other materials
relating to the Funds.
Phoenix may, when required by state insurance regulatory authorities,
disregard voting instructions if the instructions require
21
<PAGE>
that the shares be voted so as to cause a change in the subclassification or
investment objective of one or more of the portfolios of the Funds or to approve
or disapprove an investment advisory contract for the Funds. In addition,
Phoenix itself may disregard voting instructions in favor of changes initiated
by a Policyowner in the investment policies or the Investment Advisers of the
Funds if Phoenix reasonably disapproves of such changes. A change would be
disapproved only if the proposed change is contrary to state law or prohibited
by state regulatory authorities or Phoenix determined that the change would have
an adverse effect on the General Account because the proposed investment policy
for a portfolio may result in overly speculative or unsound investments. In the
event Phoenix does disregard voting instructions, a summary of that action and
the reasons for such action will be included in the next periodic report to
Policyowners.
PHOENIX
A Policyowner (or the payee entitled to payment under a payment option if a
different person) will have the right to vote at annual meetings of all Phoenix
Policyholders for the election of members of the Board of Directors of Phoenix
and on other corporate matters, if any, where a Policyholder's vote is taken. At
meetings of all of the Phoenix Policyholders, a Policyholder (or payee) may cast
only one vote as the holder of a Policy, irrespective of Policy Value or the
number of the Policies held.
THE DIRECTORS AND EXECUTIVE OFFICERS OF PHOENIX
- ------------------------------------------------------------------------------
Phoenix is managed by its Board of Directors, the members of which are
elected by its Policyholders, including Owners of the Policies. See "Voting
Rights."
The following are the Directors and Executive Officers of Phoenix:
DIRECTORS PRINCIPAL OCCUPATION
Sal H. Alfiero Chairman and Chief Executive
Officer, Mark IV Industries, Inc.
Amherst, New York
J. Carter Bacot Chairman and Chief Executive
Officer, The Bank of New York
New York, New York
Carol H. Baldi President, Carol H. Baldi, Inc.
New York, New York
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
22
<PAGE>
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
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
- -------------------------------------------------------------------------------
The assets of the VUL Account are held by Phoenix. The assets of the VUL
Account are kept physically segregated and held separate and apart from the
General Account of Phoenix. Phoenix maintains records of all purchases and
redemptions of shares of the Fund.
SALES OF POLICIES
- -------------------------------------------------------------------------------
Policies may be purchased from registered representatives of W.S. Griffith &
Co., Inc. ("W.S. Griffith") a corporation formed under the laws of the state of
New York on August 7, 1970, licensed to sell Phoenix insurance policies as well
as policies, annuity contracts and funds of companies affiliated with Phoenix.
W. S. Griffith, an indirect subsidiary of Phoenix, is registered as a
broker-dealer with the SEC under the Securities Exchange Act of 1934 (the "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 Investment Partners, Ltd.("PXP"), in which Phoenix owns a
majority interest. Policies also may be purchased from other broker-dealers
registered under the 1934 Act whose representatives are authorized by applicable
law to sell Policies under terms of agreement provided by PEPCO. Sales
commissions will be paid to registered representatives on purchase payments
received by Phoenix under these Policies. Total sales commission of a maximum of
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
- ------------------------------------------------------------------------------
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 (the "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
23
<PAGE>
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 and assessment of all business
systems, including those of its subsidiaries, was conducted. Phoenix has
identified and is now actively pursuing a number of strategies to address the
issue, including:
-- upgrading systems with compliant versions;
-- developing or acquiring new systems to replace those that are obsolete;
-- and remediating existing systems by converting code or hardware.
Based on current assessments, Phoenix expects to have its computer systems
compliant by the end of 1998, with testing to continue through 1999. In
addition, Phoenix is examining the status of its third-party vendors, obtaining
assurances that their software and hardware products will be century compliant
by 1999.
FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
The consolidated financial statements of Phoenix as contained herein should
be considered only as bearing upon Phoenix's ability to meet its obligations
under the Policy, and they should not be considered as bearing on the investment
performance of the VUL Account. The financial statements of the VUL Account are
for the Subaccounts available as of the period ended December 31, 1997.
24
<PAGE>
PHOENIX HOME LIFE VARIABLE
UNIVERSAL LIFE ACCOUNT
FINANCIAL STATEMENTS
DECEMBER 31, 1997
25
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997
<TABLE>
<CAPTION>
Multi-Sector
Money Market Growth Fixed Income
Sub-Account Sub-Account Sub-Account
---------------- ----------------- ----------------
<S> <C> <C> <C>
Assets
Investments at cost ........................................... $ 16,637,078 $ 223,382,611 $ 16,173,563
============ ============= ============
Investment in The Phoenix Edge Series Fund, at market ......... $ 16,637,078 $ 236,855,460 $ 16,582,895
------------ ------------- ------------
Total assets ................................................. 16,637,078 236,855,460 16,582,895
Liabilities
Accrued expenses to related party ............................. 9,797 156,810 10,808
------------ ------------- ------------
Net assets ..................................................... $ 16,627,281 $ 236,698,650 $ 16,572,087
============ ============= ============
Accumulation units outstanding ................................. 11,538,596 56,320,835 7,200,511
============ ============= ============
Unit value ..................................................... $ 1.441014 $ 4.202684 $ 2.301515
============ ============= ============
</TABLE>
<TABLE>
<CAPTION>
Strategic
Allocation International Balanced
Sub-Account Sub-Account Sub-Account
---------------- --------------- ----------------
<S> <C> <C> <C>
Assets
Investments at cost ........................................... $ 35,170,967 $ 38,821,949 $ 19,629,676
============ ============ ============
Investment in The Phoenix Edge Series Fund, at market ......... $ 36,045,635 $ 43,146,110 $ 20,745,874
------------ ------------ ------------
Total assets ................................................. 36,045,635 43,146,110 20,745,874
Liabilities
Accrued expenses to related party ............................. 24,077 28,378 13,791
------------ ------------ ------------
Net assets ..................................................... $ 36,021,558 $ 43,117,732 $ 20,732,083
============ ============ ============
Accumulation units outstanding ................................. 12,947,264 23,810,180 11,686,186
============ ============ ============
Unit value ..................................................... $ 2.782175 $ 1.810895 $ 1.774067
============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Aberdeen
Real Estate Strategic Theme New Asia
Sub-Account Sub-Account Sub-Account
--------------- ----------------- ---------------
<S> <C> <C> <C>
Assets
Investments at cost ........................................... $ 3,703,960 $ 4,532,000 $ 1,559,523
=========== =========== ===========
Investment in The Phoenix Edge Series Fund, at market ......... $ 4,148,357 $ 4,473,952 $ 1,049,925
----------- ----------- -----------
Total assets ................................................. 4,148,357 4,473,952 1,049,925
Liabilities
Accrued expenses to related party ............................. 2,644 2,907 695
----------- ----------- -----------
Net assets ..................................................... $ 4,145,713 $ 4,471,045 $ 1,049,230
=========== =========== ===========
Accumulation units outstanding ................................. 2,623,760 3,845,161 1,565,906
=========== =========== ===========
Unit value ..................................................... $ 1.580065 $ 1.162772 $ 0.670046
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Wanger
Enhanced International Wanger U.S.
Index Small Cap Small Cap
Sub-Account Sub-Account Sub-Account
--------------- --------------- ----------------
<S> <C> <C> <C>
Assets
Investments at cost ........................................... $ 1,911,997 $ 6,984,952 $ 14,388,061
=========== =========== ============
Investment in the Phoenix Edge Series Fund, at market ......... $ 1,952,250 -- --
Investment in Wanger Advisors Trust, at market ................ -- $ 6,538,176 $ 16,357,922
----------- ----------- ------------
Total assets ................................................. 1,952,250 6,538,176 16,357,922
Liabilities
Accrued expenses to related party ............................. 1,242 4,304 10,425
----------- ----------- ------------
Net assets ..................................................... $ 1,951,008 $ 6,533,872 $ 16,347,497
=========== =========== ============
Accumulation units outstanding ................................. 1,830,791 6,507,413 12,260,968
=========== =========== ============
Unit value ..................................................... $ 1.065664 $ 1.004066 $ 1.333296
=========== =========== ============
</TABLE>
See Notes to Financial Statements
26
<PAGE>
STATEMENT OF OPERATIONS
For the period ended December 31, 1997
<TABLE>
<CAPTION>
Multi-Sector
Money Market Growth Fixed Income
Sub-Account Sub-Account Sub-Account
-------------- --------------- -------------
<S> <C> <C> <C>
Investment income
Distributions ............................................... $787,128 $ 1,274,518 $1,024,853
Expenses
Mortality and expense risk charges .......................... 124,354 1,639,929 110,127
-------- ----------- ----------
Net investment income (loss) ................................. 662,774 (365,411) 914,726
-------- ----------- ----------
Net realized gain (loss) from share transactions ............. 34 (13,683) 4,696
Net realized gain distribution from Fund ..................... -- 36,351,738 401,988
Net unrealized appreciation on investment .................... -- 909,243 18,289
-------- ----------- ----------
Net gain on investments ...................................... 34 37,247,298 424,973
-------- ----------- ----------
Net increase in net assets resulting from operations ......... $662,808 $36,881,887 $1,339,699
======== =========== ==========
</TABLE>
<TABLE>
<CAPTION>
Strategic
Allocation International Balanced
Sub-Account Sub-Account Sub-Account
------------- --------------- ------------
<S> <C> <C> <C>
Investment income
Distributions ................................................... $ 681,837 $ 526,957 $ 561,561
Expenses
Mortality and expense risk charges .............................. 249,583 315,851 145,865
---------- ---------- ----------
Net investment income ............................................ 432,254 211,106 415,696
---------- ---------- ----------
Net realized gain (loss) from share transactions ................. 16,230 (38,944) 7,612
Net realized gain distribution from Fund ......................... 4,395,531 4,047,584 2,259,915
Net unrealized appreciation (depreciation) on investment ......... 604,211 (307,551) 120,786
---------- ---------- ----------
Net gain on investments .......................................... 5,015,972 3,701,089 2,388,313
---------- ---------- ----------
Net increase in net assets resulting from operations ............. $5,448,226 $3,912,195 $2,804,009
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Aberdeen
Real Estate Strategic Theme New Asia
Sub-Account Sub-Account Sub-Account
------------- ----------------- --------------
<S> <C> <C> <C>
Investment income
Distributions .......................................................... $ 91,995 $ 13,601 $ 46,168
Expenses
Mortality and expense risk charges ..................................... 20,395 26,037 11,151
-------- --------- ----------
Net investment income (loss) ............................................ 71,600 (12,436) 35,017
-------- --------- ----------
Net realized gain (loss) from share transactions ........................ 438 2,000 (13,900)
Net realized gain distribution from Fund ................................ 136,883 515,108 791
Net unrealized appreciation (depreciation) on investment ................ 332,563 (66,310) (502,645)
-------- --------- ----------
Net gain (loss) on investments .......................................... 469,884 450,798 (515,754)
-------- --------- ----------
Net increase (decrease) in net assets resulting from operations ......... $541,484 $ 438,362 $ (480,737)
======== ========= ==========
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Wanger Wanger
Enhanced International U.S.
Index Small Cap Small Cap
Sub-Account(1) Sub-Account Sub-Account
-------------- ----------- -----------
Investment income
Distributions .......................................................... $ 9,326 $ 68,447 $ 103,408
Expenses
Mortality and expense risk charges ..................................... 3,926 35,993 67,198
-------------- --------- ----------
Net investment income ................................................... 5,400 32,454 36,210
-------------- --------- ----------
Net realized loss from share transactions ............................... (334) (3,142) (13,408)
Net realized gain distribution from Fund ................................ 8,778 -- --
Net unrealized appreciation (depreciation) on investment ................ 40,253 (450,637) 1,960,796
-------------- --------- ----------
Net gain (loss) on investments .......................................... 48,697 (453,779) 1,947,388
-------------- --------- ----------
Net increase (decrease) in net assets resulting from operations ......... $ 54,097 $(421,325) $1,983,598
============== ========= ==========
(1) From inception July 18, 1997 to December 31, 1997
</TABLE>
See Notes to Financial Statements
27
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
For the period ended December 31, 1997
<TABLE>
<CAPTION>
Multi-Sector
Money Market Growth Fixed Income
Sub-Account Sub-Account Sub-Account
------------ ----------- ------------
<S> <C> <C> <C>
From operations
Net investment income (loss) ............................................ $ 662,774 $ (365,411) $ 914,726
Net realized gain ....................................................... 34 36,338,055 406,684
Net unrealized appreciation ............................................. -- 909,243 18,289
------------- ------------- ------------
Net increase in net assets resulting from operations .................... 662,808 36,881,887 1,339,699
------------- ------------- ------------
From accumulation unit transactions
Participant deposits .................................................... 29,753,469 51,373,829 3,839,754
Participant transfers ................................................... (24,739,794) 461,474 1,758,903
Participant withdrawals ................................................. (4,583,895) (24,768,747) (1,594,349)
------------- ------------- ------------
Net increase in net assets resulting from participant transactions ...... 429,780 27,066,556 4,004,308
------------- ------------- ------------
Net increase in net assets .............................................. 1,092,588 63,948,443 5,344,007
Net assets
Beginning of period ..................................................... 15,534,693 172,750,207 11,228,080
------------- ------------- ------------
End of period ........................................................... $ 16,627,281 $ 236,698,650 $ 16,572,087
============= ============= ============
</TABLE>
<TABLE>
<CAPTION>
Strategic
Allocation International Balanced
Sub-Account Sub-Account Sub-Account
--------------- --------------- ---------------
<S> <C> <C> <C>
From operations
Net investment income ................................................... $ 432,254 $ 211,106 $ 415,696
Net realized gain ....................................................... 4,411,761 4,008,640 2,267,527
Net unrealized appreciation (depreciation) .............................. 604,211 (307,551) 120,786
------------ ------------ ------------
Net increase in net assets resulting from operations .................... 5,448,226 3,912,195 2,804,009
------------ ------------ ------------
From accumulation unit transactions
Participant deposits .................................................... 6,156,264 9,403,556 3,516,448
Participant transfers ................................................... 1,805,561 284,097 397,233
Participant withdrawals ................................................. (3,655,616) (4,537,485) (2,204,100)
------------ ------------ ------------
Net increase in net assets resulting from participant transactions ...... 4,306,209 5,150,168 1,709,581
------------ ------------ ------------
Net increase in net assets .............................................. 9,754,435 9,062,363 4,513,590
Net assets
Beginning of period ..................................................... 26,267,123 34,055,369 16,218,493
------------ ------------ ------------
End of period ........................................................... $ 36,021,558 $ 43,117,732 $ 20,732,083
============ ============ ============
</TABLE>
See Notes to Financial Statements
28
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
For the period ended December 31, 1997
(Continued)
<TABLE>
<CAPTION>
Aberdeen
Real Estate Strategic Theme New Asia
Sub-Account Sub-Account Sub-Account
------------- ----------------- --------------
<S> <C> <C> <C>
From operations
Net investment income (loss) ............................................ $ 71,600 $ (12,436) $ 35,017
Net realized gain (loss) ................................................ 137,321 517,108 (13,109)
Net unrealized appreciation (depreciation) .............................. 332,563 (66,310) (502,645)
---------- ---------- ----------
Net increase (decrease) in net assets resulting from operations ......... 541,484 438,362 (480,737)
---------- ---------- ----------
From accumulation unit transactions
Participant deposits .................................................... 1,089,983 1,476,759 522,055
Participant transfers ................................................... 1,984,226 1,197,938 (774,160)
Participant withdrawals ................................................. (357,873) (447,958) (159,479)
---------- ---------- ----------
Net increase (decrease) in net assets resulting from participant
transactions ........................................................... 2,716,336 2,226,739 (411,584)
---------- ---------- ----------
Net increase (decrease) in net assets ................................... 3,257,820 2,665,101 (892,321)
Net assets
Beginning of period ..................................................... 887,893 1,805,944 1,941,551
---------- ---------- ----------
End of period ........................................................... $4,145,713 $4,471,045 $1,049,230
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Wanger
Enhanced International Wanger U.S.
Index Small Cap Small Cap
Sub-Account(1) Sub-Account Sub-Account
---------------- --------------- --------------
<S> <C> <C> <C>
From operations
Net investment income ................................................... $ 5,400 $ 32,454 $ 36,210
Net realized gain (loss) ................................................ 8,444 (3,142) (13,408)
Net unrealized appreciation (depreciation) .............................. 40,253 (450,637) 1,960,796
---------- ---------- ------------
Net increase (decrease) in net assets resulting from operations ......... 54,097 (421,325) 1,983,598
---------- ---------- ------------
From accumulation unit transactions
Participant deposits .................................................... 334,421 2,372,417 3,760,805
Participant transfers ................................................... 1,632,282 4,882,238 11,222,509
Participant withdrawals ................................................. (69,792) (595,864) (1,086,412)
---------- ---------- ------------
Net increase in net assets resulting from participant transactions ...... 1,896,911 6,658,791 13,896,902
---------- ---------- ------------
Net increase in net assets .............................................. 1,951,008 6,237,466 15,880,500
Net assets
Beginning of period ..................................................... -- 296,406 466,997
---------- ---------- ------------
End of period ........................................................... $1,951,008 $6,533,872 $ 16,347,497
========== ========== ============
(1) From inception July 18, 1997 to December 31, 1997
</TABLE>
See Notes to Financial Statements
29
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
For the period ended December 31, 1996
<TABLE>
<CAPTION>
Multi-Sector
Money Market Growth Fixed Income
Sub-Account Sub-Account Sub-Account
---------------- ---------------- ---------------
<S> <C> <C> <C>
From operations
Net investment income ................................................... $ 548,378 $ 281,274 $ 593,496
Net realized gain ....................................................... -- 11,420,506 326,876
Net unrealized appreciation ............................................. -- 4,791,630 43,393
------------- ------------- ------------
Net increase in net assets resulting from operations .................... 548,378 16,493,410 963,765
------------- ------------- ------------
From accumulation unit transactions
Participant deposits .................................................... 26,004,635 47,202,324 2,811,259
Participant transfers ................................................... (21,268,222) 10,438,285 1,823,625
Participant withdrawals ................................................. (3,701,639) (19,333,192) (1,071,344)
------------- ------------- ------------
Net increase in net assets resulting from participant transactions ...... 1,034,774 38,307,417 3,563,540
------------- ------------- ------------
Net increase in net assets .............................................. 1,583,152 54,800,827 4,527,305
Net assets
Beginning of period ..................................................... 13,951,541 117,949,380 6,700,775
------------- ------------- ------------
End of period ........................................................... $ 15,534,693 $ 172,750,207 $ 11,228,080
============= ============= ============
</TABLE>
<TABLE>
<CAPTION>
Strategic Allocation International Balanced
Sub-Account Sub-Account Sub-Account
---------------------- --------------- ---------------
<S> <C> <C> <C>
From operations
Net investment income ................................................... $ 324,553 $ 245,322 $ 296,076
Net realized gain ....................................................... 1,622,713 747,494 1,394,172
Net unrealized appreciation (depreciation) .............................. (91,227) 3,401,467 (304,864)
------------ ------------ ------------
Net increase in net assets resulting from operations .................... 1,856,039 4,394,283 1,385,384
------------ ------------ ------------
From accumulation unit transactions
Participant deposits .................................................... 6,031,095 8,480,853 3,636,746
Participant transfers ................................................... 1,002,380 3,847,285 (651,439)
Participant withdrawals ................................................. (2,871,670) (3,414,225) (1,868,673)
------------ ------------ ------------
Net increase in net assets resulting from participant transactions ...... 4,161,805 8,913,913 1,116,634
------------ ------------ ------------
Net increase in net assets .............................................. 6,017,844 13,308,196 2,502,018
Net assets
Beginning of period ..................................................... 20,249,279 20,747,173 13,716,475
------------ ------------ ------------
End of period ........................................................... $ 26,267,123 $ 34,055,369 $ 16,218,493
============ ============ ============
</TABLE>
See Notes to Financial Statements
30
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
For the period ended December 31, 1996
(Continued)
<TABLE>
<CAPTION>
Aberdeen
Real Estate Strategic Theme New Asia
Sub-Account(1) Sub-Account(1) Sub-Account(2)
---------------- ----------------- ---------------
<S> <C> <C> <C>
From operations
Net investment income ................................................... $ 8,506 $ 910 $ 7,082
Net realized gain ....................................................... 22,646 1,002 919
Net unrealized appreciation (depreciation) .............................. 111,837 8,263 (6,953)
--------- ---------- ----------
Net increase in net assets resulting from operations .................... 142,989 10,175 1,048
--------- ---------- ----------
From accumulation unit transactions
Participant deposits .................................................... 114,179 507,159 137,347
Participant transfers ................................................... 648,017 1,412,288 1,825,934
Participant withdrawals ................................................. (17,292) (123,678) (22,778)
--------- ---------- ----------
Net increase in net assets resulting from participant transactions ...... 744,904 1,795,769 1,940,503
--------- ---------- ----------
Net increase in net assets .............................................. 887,893 1,805,944 1,941,551
Net assets
Beginning of period ..................................................... -- -- --
--------- ---------- ----------
End of period ........................................................... $ 887,893 $1,805,944 $1,941,551
========= ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Wanger
International Wanger U.S.
Small Cap Small Cap
Sub-Account(3) Sub-Account(3)
---------------- ----------------
<S> <C> <C>
From operations
Net investment loss ..................................................... $ (30) $ (65)
Net realized gain ....................................................... -- 29
Net unrealized appreciation ............................................. 3,861 9,066
-------- --------
Net increase in net assets resulting from operations .................... 3,831 9,030
-------- --------
From accumulation unit transactions
Participant deposits .................................................... 8,061 11,399
Participant transfers ................................................... 284,998 447,242
Participant withdrawals ................................................. (484) (674)
-------- --------
Net increase in net assets resulting from participant transactions ...... 292,575 457,967
-------- --------
Net increase in net assets .............................................. 296,406 466,997
Net assets
Beginning of period ..................................................... -- --
-------- --------
End of period ........................................................... $296,406 $466,997
======== ========
(1) From inception May 1, 1996 to December 31, 1996
(2) From inception September 18, 1996 to December 31, 1996
(3) From inception December 18, 1996 to December 31, 1996
</TABLE>
See Notes to Financial Statements
31
<PAGE>
PHOENIX HOME LIFE VARIABLE UNIVERSAL LIFE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
Note 1--Organization
Phoenix Home Life Variable Universal Life Account (the "Account") is a
separate investment account of Phoenix Home Life Mutual Insurance Company
(Phoenix). The Account is offered as Flex Edge and Flex Edge Success for
individual variable life insurance and as Joint Edge for variable first-to-die
joint life insurance. The Account is registered as a unit investment trust
under the Investment Company Act of 1940, as amended, and currently consists of
twelve Sub-Accounts, that invest in a corresponding series of The Phoenix Edge
Series Fund, or Wanger Advisors Trust (the "Funds").
Each series has distinct investment objectives. The Money Market Series is
a short-term investment fund. The Growth Series is a growth common stock fund.
The Multi-Sector Fixed Income Series 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
internationally diversified 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.
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 ........................... $24,741,678 $23,649,364
Growth ................................. 74,873,217 11,780,750
Multi-Sector Fixed Income .............. 7,751,739 2,427,026
Strategic Allocation ................... 11,873,632 2,733,352
International .......................... 14,334,763 4,919,601
Balanced ............................... 6,251,920 1,863,892
Real Estate ............................ 3,551,387 624,453
Strategic Theme ........................ 3,086,981 355,827
Aberdeen New Asia ...................... 1,164,685 1,541,033
Enhanced Index ......................... 1,996,553 84,221
Wanger Advisors Trust:
Wanger International Small Cap ......... 7,495,468 799,948
Wanger U.S. Small Cap .................. 14,506,011 562,538
</TABLE>
Note 4--Participant Accumulation Unit Transactions (in units)
<TABLE>
<CAPTION>
Sub-Account
--------------------------------------------------------------------------------------------
Money Multi-Sector Strategic
Market Growth Fixed Income Allocation International Balanced
-------------- ------------ -------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Flex Edge and Flex Edge Success:
Units outstanding, beginning of period . 10,724,432 47,488,023 5,233,038 10,993,304 20,012,736 10,200,782
Participant deposits ................... 19,441,883 12,224,278 1,660,100 2,243,760 4,956,751 1,966,680
Participant transfers .................. (16,331,954) (111,168) 768,740 631,459 76,649 208,481
Participant withdrawals ................ (2,946,179) (5,804,421) (692,262) (1,315,119) (2,354,334) (1,223,284)
------------- ---------- --------- ---------- ----------- -----------
Units outstanding, end of period ....... 10,888,182 53,796,712 6,969,616 12,553,404 22,691,802 11,152,659
============= ========== ========= ========== =========== ===========
Wanger
Strategic Aberdeen Enhanced International Wanger U.S.
Real Estate Theme New Asia Index Small Cap Small Cap
---------------- ---------- -------------- ------------- ---------------- -----------
Units outstanding, beginning of period . 661,261 1,662,135 1,908,225 -- 276,887 432,094
Participant deposits ................... 694,118 1,168,665 544,018 279,879 2,032,782 2,821,067
Participant transfers .................. 1,369,217 1,023,653 (839,908) 1,587,831 4,347,440 9,260,836
Participant withdrawals ................ (222,186) (329,249) (153,781) (67,917) (501,136) (756,874)
------------- ---------- ---------- ------------- ----------- -----------
Units outstanding, end of period ....... 2,502,410 3,525,204 1,458,554 1,799,793 6,155,973 11,757,123
============= ========== ========== ============= =========== ===========
</TABLE>
32
<PAGE>
PHOENIX HOME LIFE VARIABLE UNIVERSAL LIFE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Money Multi-Sector Strategic
Market Growth Fixed Income Allocation International Balanced
--------------- ------------- -------------- ------------- -------------- -----------
Joint Edge:
<S> <C> <C> <C> <C> <C> <C>
Units outstanding, beginning of period ..... 524,887 1,887,862 145,848 315,311 891,214 495,615
Participant deposits ....................... 1,559,669 951,327 71,988 125,380 375,497 130,272
Participant transfers ...................... (1,247,797) 168,606 53,880 27,451 65,833 (9,439)
Participant withdrawals .................... (186,345) (483,672) (40,821) (74,282) (214,166) (82,921)
-------------- --------- -------- ------- ----------- --------
Units outstanding, end of period ........... 650,414 2,524,123 230,895 393,860 1,118,378 533,527
============== ========= ======== ======= =========== ========
Wanger
Strategic Aberdeen Enhanced International Wanger U.S
Real Estate Theme New Asia Index Small Cap Small Cap
--------------- --------- -------------- ---------- ---------------- ----------
Units outstanding, beginning of period ..... 19,197 143,329 34,915 -- 11,716 17,668
Participant deposits ....................... 63,663 168,852 54,008 20,878 152,815 212,241
Participant transfers ...................... 58,532 80,865 34,503 12,228 227,435 330,381
Participant withdrawals .................... (20,042) (73,089) (16,074) (2,108) (40,526) (56,445)
-------------- --------- -------- ---------- ------------ --------
Units outstanding, end of period ........... 121,350 319,957 107,352 30,998 351,440 503,845
============== ========= ======== ========== ============ ========
</TABLE>
Note 5--Policy Loans
Transfers are made to Phoenix's general account as a result of policy
loans. Policy provisions allow policyowners to borrow up to 90% of a policy's
cash value with an interest rate set in accordance with the contract due and
payable on each policy anniversary. At the time a loan is granted, an amount
equivalent to the amount of the loan is transferred from the Account to
Phoenix's general account as collateral for the outstanding loan. These
transfers are included in participant withdrawals in the accompanying financial
statements. Amounts in the general account are credited with interest at 2% for
Flex Edge success policies, and 6% for Joint Edge and Flex Edge policies. Loan
repayments result in a transfer of collateral back to the Account.
Note 6--Investment Advisory Fees and Related Party Transactions
Phoenix and its indirect, majority owned subsidiary, Phoenix Equity
Planning Corporation, a registered broker/dealer in securities, provide all
services to the Account.
The cost of insurance is charged to each policy on a monthly basis by a
withdrawal of participant units prorated among the elected Sub-Accounts. The
amount charged to each policy depends on a number of variables including sex,
age and risk class as well as the death benefit and cash value of the policy.
Such costs aggregated $24,715,463 during the year 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 partial surrender charge equal
to a pro rata portion of the applicable surrender charge is deducted from the
policy value and paid to Phoenix.
Phoenix Equity Planning Corporation is the principal underwriter and
distributor of the Account. Phoenix Equity Planning Corporation is reimbursed
for its distribution and underwriting expenses by Phoenix.
Policies which are surrendered during the first ten policy years will
incur a surrender charge, consisting of a contingent deferred sales charge
designed to recover expenses for the distribution of Policies that are
terminated by surrender before distribution expenses have been recouped, and a
contingent deferred issue charge designed to recover expenses for the
administration of Policies that are terminated by surrender before
administrative expenses have been recouped. These are contingent charges paid
only if the Policy is surrendered (or a partial withdrawal is taken or the Face
Amount is reduced or the Policy lapses) during the first ten policy years. The
charges are deferred (i.e. not deducted from premiums).
Phoenix assumes the mortality risk that insureds may live for a shorter
time than projected because of inaccuracies in the projecting process and,
accordingly, that an aggregate amount of death benefits greater than projected
will be payable. The expense risk assumed is that expenses incurred in issuing
the policies may exceed the limits on administrative charges set in the
policies. In return for the assumption of these mortality and expense risks,
Phoenix charges the Account an annual rate of 0.80% of the average daily net
assets of the Account for mortality and expense risks assumed for Flex Edge and
Joint Edge. For Flex Edge Success, the Account is charged an annual rate of
0.80% for the first fifteen years and 0.25% thereafter.
Note 7--Diversification Requirements
Under the provisions of Section 817(h) of the Internal Revenue Code (the
"Code"), a variable universal life contract, other than a contract issued in
connection with certain types of employee benefit plans, will not be treated as
a universal life contract for federal tax purposes for any period for which the
investments of the segregated asset account on which the contract is based are
not adequately diversified. The Code provides that the "adequately diversified"
requirement may be met if the underlying investments satisfy either a statutory
safe harbor test or diversification requirements set forth in regulations
issued by the Secretary of Treasury.
The Internal Revenue Service has issued regulations under Section 817(h)
of the Code. Phoenix believes that the Account satisfies the current
requirements of the regulations, and it intends that the Account will continue
to meet such requirements.
33
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
[Price Waterhouse LLP logotype] [LOGO]
To the Board of Directors of Phoenix Home Life Mutual Insurance Company and
Participants of Phoenix Home Life Variable Universal Life Account
In our opinion, the accompanying statement of assets and liabilities and the
related statement of operations and of changes in net assets present fairly, in
all material respects, the financial position of the Money Market Sub-Account,
Growth Sub-Account, Multi-Sector Fixed Income Sub-Account, Strategic Allocation
Sub-Account, International Sub-Account, Balanced Sub-Account, Real Estate
Sub-Account, Strategic Theme Sub-Account, Aberdeen New Asia Sub-Account,
Enhanced Index Sub-Account, Wanger International Small Cap Sub-Account and
Wanger U.S. Small Cap Sub-Account (constituting the Phoenix Home Life Variable
Universal Life Account, hereafter referred to as the "Account") at December 31,
1997 and the results of each of their operations and the changes in each of
their net assets for each of the periods indicated, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Account's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of investments at December 31, 1997 by
correspondence with the Funds' custodians, provide a reasonable basis for the
opinion expressed above.
/s/ Price Waterhouse LLP
Hartford, Connecticut
February 19, 1998
34
<PAGE>
PHOENIX HOME LIFE
VARIABLE UNIVERSAL LIFE ACCOUNT
Phoenix Home Life Mutual Insurance Company
One American Row
Hartford, Connecticut 06115
Underwriter
Phoenix Equity Planning Corporation
P.O. Box 2200
100 Bright Meadow Boulevard
Enfield, Connecticut 06083-2200
Custodians
The Chase Manhattan Bank, N.A.
1 Chase Manhattan Plaza
Floor 3B
New York, New York 10081
Brown Brothers Harriman & Co.
(International Series, Aberdeen New Asia Series)
40 Water Street
Boston, Massachusetts 02109
State Street Bank and Trust
(Real Estate Series, Enhanced Index Series)
P.O. Box 351
Boston, Massachusetts 02101
Independent Accountants
Price Waterhouse LLP
One Financial Plaza
Hartford, Connecticut 06103
35
<PAGE>
PHOENIX HOME LIFE MUTUAL
INSURANCE COMPANY
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
36
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Report of Independent Accountants ............................................38
Consolidated Balance Sheet at December 31, 1997 and 1996 .....................39
Consolidated Statement of Income and Equity for the Years Ended
December 31, 1997, 1996 and 1995 ...........................................40
Consolidated Statement of Cash Flows for the Years Ended
December 31, 1997, 1996 and 1995 ............................................41
Notes to Consolidated Financial Statements ................................42-68
37
<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
38
<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.
39
<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.
40
<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.
41
<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.
42
<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.
43
<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.
44
<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.
45
<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.
46
<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>
47
<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>
48
<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.
49
<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.
50
<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.
51
<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.
52
<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>
53
<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.
54
<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.
55
<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>
56
<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
=========== ========== ============
57
<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>
58
<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.
59
<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.
60
<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.
61
<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>
62
<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.
63
<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>
64
<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>
65
<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.
66
<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>
67
<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.
68
<PAGE>
APPENDIX A
THE GUARANTEED INTEREST ACCOUNT
Contributions to the GIA under the Policy and transfers to the GIA become
part of 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 6%.
Phoenix may credit interest at a rate in excess of 4% per year; however, it is
not obligated to credit any interest in excess of 4% per year.
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, ONE TRANSFER PER CONTRACT YEAR IS ALLOWED FROM THE GIA. THE AMOUNT
WHICH CAN BE TRANSFERRED IS LIMITED TO THE GREATER OF $1,000 OR 25% OF THE
CONTRACT VALUE IN THE GIA AT THE TIME OF THE TRANSFER. UNDER THE SYSTEMATIC
TRANSFER PROGRAM, TRANSFERS OF APPROXIMATELY EQUAL AMOUNTS MAY BE MADE OVER A
MINIMUM 18-MONTH PERIOD. NON-SYSTEMATIC TRANSFERS FROM THE GIA WILL BE
EFFECTUATED ON THE DATE OF RECEIPT BY VPMO, UNLESS OTHERWISE REQUESTED BY THE
CONTRACT OWNER.
69
<PAGE>
APPENDIX B
ILLUSTRATIONS OF DEATH BENEFITS, POLICY VALUES ("ACCOUNT VALUES")
AND CASH SURRENDER VALUES
The tables on the following pages illustrate how a Policy's Death Benefits,
Account Values and Cash Surrender Value could vary over time assuming constant
hypothetical gross (after tax) annual investment returns of 0%, 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%, 6% or 12% over a period of years but went
above or below those figures in individual Policy Years. The Policy benefits
also will differ, depending on your premium allocations to each Subaccount of
the VUL Account, if the overall actual rates of return averaged 0%, 6% or 12%,
but went above or below those figures for the individual Subaccounts. The tables
are for standard risk males and females who have never smoked. In states where
cost of insurance rates are not based on the Insured's sex, the tables
designated "male" apply to all standard risk insureds who have never smoked.
Account values and Cash Surrender Values may be lower for smokers or former
smokers or for risk classes involving higher mortality risk. Planned premium
payments are assumed to be paid at the beginning of each Policy Year. The
difference between the Policy Value and the Cash Surrender Value in the first 10
years is the surrender charge. Illustrated tables are included for death benefit
Option 1 and Option 2. Tables also are included to reflect the blended cost of
insurance charge applied under Multiple Life Policies.
The death benefit, account value and Cash Surrender Value amounts reflect
the following current charges:
1. Issue charge of $150.
2. Monthly administrative charge of $5 per month ($10 per month guaranteed
maximum).
3. Premium tax charge of 2.25% (will vary from state to state).
4. Cost of insurance charge. The tables illustrate cost of insurance at both
the current rates and at the maximum rates guaranteed in the Policies. (See
"Charges and Deductions--Cost of Insurance.")
5. Mortality and expense risk charge, which is a daily charge equivalent to
.80% on an annual basis against the VUL Account for mortality and expense
risks. (See "Charges and Deductions--Mortality and Expense Risk Charge.")
These illustrations also assume an average investment advisory fee of .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%. All other Fund expenses, except capital items such as brokerage
commissions, are paid by the Adviser or by Phoenix. Management may decide to
limit the amount of expense reimbursement in the future. If expense
reimbursement had not been in place for the fiscal year ended December 31, 1997,
average total operating expenses for the Series would have been approximately
1.17% 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. 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.
70
<PAGE>
<TABLE>
<CAPTION>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY PAGE 1 OF 2
STATUTORY HOME OFFICE: EAST GREENBUSH, NEW YORK
FACE AMOUNT: $100,000
MALE 35 NEVERSMOKE INITIAL ANNUAL PREMIUM: $1,000
THE FLEX EDGE--A FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY OPTION 1
ASSUMING CURRENT CHARGES
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>
1 1,000 1,050 614 0 100,000 661 0 100,000 709 0 100,000
2 1,000 2,153 1,361 450 100,000 1,499 588 100,000 1,642 731 100,000
3 1,000 3,310 2,089 1,087 100,000 2,365 1,363 100,000 2,664 1,662 100,000
4 1,000 4,526 2,798 1,770 100,000 3,261 2,234 100,000 3,784 2,756 100,000
5 1,000 5,802 3,486 2,459 100,000 4,188 3,161 100,000 5,010 3,982 100,000
6 1,000 7,142 4,155 3,250 100,000 5,145 4,241 100,000 6,352 5,448 100,000
7 1,000 8,549 4,800 4,020 100,000 6,132 5,351 100,000 7,821 7,040 100,000
8 1,000 10,027 5,423 4,829 100,000 7,149 6,555 100,000 9,427 8,834 100,000
9 1,000 11,578 6,021 5,615 100,000 8,195 7,789 100,000 11,185 10,779 100,000
10 1,000 13,207 6,597 6,597 100,000 9,274 9,274 100,000 13,111 13,111 100,000
11 1,000 14,917 7,148 7,148 100,000 10,385 10,385 100,000 15,222 15,222 100,000
12 1,000 16,713 7,669 7,669 100,000 11,524 11,524 100,000 17,530 17,530 100,000
13 1,000 18,599 8,159 8,159 100,000 12,690 12,690 100,000 20,057 20,057 100,000
14 1,000 20,579 8,617 8,617 100,000 13,884 13,884 100,000 22,824 22,824 100,000
15 1,000 22,657 9,041 9,041 100,000 15,104 15,104 100,000 25,856 25,856 100,000
16 1,000 24,840 9,429 9,429 100,000 16,351 16,351 100,000 29,180 29,180 100,000
17 1,000 27,132 9,780 9,780 100,000 17,626 17,626 100,000 32,829 32,829 100,000
18 1,000 29,539 10,092 10,092 100,000 18,927 18,927 100,000 36,836 36,836 100,000
19 1,000 32,066 10,361 10,361 100,000 20,251 20,251 100,000 41,240 41,240 100,000
20 1,000 34,719 10,582 10,582 100,000 21,597 21,597 100,000 46,082 46,082 100,000
@ 65 1,000 69,761 9,228 9,228 100,000 35,871 35,871 100,000 131,699 131,699 160,674
</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%
(includes mortality and expense risk charge of 0.8% 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 GIA providing interest at
a minimum guaranteed rate of 4% also is available under this product through the
General Account.
This illustration assumes a premium tax of 2.25%.
71
<PAGE>
<TABLE>
<CAPTION>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY PAGE 2 OF 2
STATUTORY HOME OFFICE: EAST GREENBUSH, NEW YORK
FACE AMOUNT: $100,000
MALE 35 NEVERSMOKE INITIAL ANNUAL PREMIUM: $1,000
THE FLEX EDGE--A FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY OPTION 1
ASSUMING GUARANTEED CHARGES
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>
1 1,000 1,050 531 0 100,000 576 0 100,000 620 0 100,000
2 1,000 2,153 1,194 283 100,000 1,321 410 100,000 1,454 543 100,000
3 1,000 3,310 1,836 834 100,000 2,088 1,086 100,000 2,362 1,360 100,000
4 1,000 4,526 2,455 1,428 100,000 2,876 1,849 100,000 3,352 2,324 100,000
5 1,000 5,802 3,051 2,023 100,000 3,685 2,657 100,000 4,429 3,401 100,000
6 1,000 7,142 3,623 2,719 100,000 4,514 3,610 100,000 5,602 4,698 100,000
7 1,000 8,549 4,169 3,388 100,000 5,361 4,581 100,000 6,879 6,098 100,000
8 1,000 10,027 4,689 4,095 100,000 6,229 5,636 100,000 8,270 7,677 100,000
9 1,000 11,578 5,181 4,775 100,000 7,115 6,709 100,000 9,786 9,380 100,000
10 1,000 13,207 5,646 5,646 100,000 8,020 8,020 100,000 11,439 11,439 100,000
11 1,000 14,917 6,081 6,081 100,000 8,942 8,942 100,000 13,241 13,241 100,000
12 1,000 16,713 6,484 6,484 100,000 9,881 9,881 100,000 15,208 15,208 100,000
13 1,000 18,599 6,854 6,854 100,000 10,835 10,835 100,000 17,355 17,355 100,000
14 1,000 20,579 7,191 7,191 100,000 11,804 11,804 100,000 19,700 19,700 100,000
15 1,000 22,657 7,491 7,491 100,000 12,786 12,786 100,000 22,264 22,264 100,000
16 1,000 24,840 7,753 7,753 100,000 13,781 13,781 100,000 25,070 25,070 100,000
17 1,000 27,132 7,971 7,971 100,000 14,784 14,784 100,000 28,139 28,139 100,000
18 1,000 29,539 8,141 8,141 100,000 15,789 15,789 100,000 31,498 31,498 100,000
19 1,000 32,066 8,256 8,256 100,000 16,793 16,793 100,000 35,177 35,177 100,000
20 1,000 34,719 8,310 8,310 100,000 17,790 17,790 100,000 39,210 39,210 100,000
@ 65 1,000 69,761 3,860 3,860 100,000 25,946 25,946 100,000 110,585 110,585 134,914
</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%
(includes mortality and expense risk charge of 0.8% 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 GIA providing interest at
a minimum guaranteed rate of 4% also is available under this product through the
This illustration assumes a premium tax of 2.25%.
72
<PAGE>
<TABLE>
<CAPTION>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY PAGE 1 OF 2
STATUTORY HOME OFFICE: EAST GREENBUSH, NEW YORK
FACE AMOUNT: $100,000
FEMALE 35 NEVERSMOKE INITIAL ANNUAL PREMIUM: $1,000
THE FLEX EDGE--A FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY OPTION 1
ASSUMING CURRENT CHARGES
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>
1 1,000 1,050 630 0 100,000 677 0 100,000 725 0 100,000
2 1,000 2,153 1,390 510 100,000 1,530 650 100,000 1,675 795 100,000
3 1,000 3,310 2,131 1,176 100,000 2,411 1,456 100,000 2,715 1,760 100,000
4 1,000 4,526 2,851 1,896 100,000 3,323 2,368 100,000 3,853 2,898 100,000
5 1,000 5,802 3,552 2,597 100,000 4,264 3,309 100,000 5,099 4,144 100,000
6 1,000 7,142 4,231 3,390 100,000 5,237 4,397 100,000 6,463 5,622 100,000
7 1,000 8,549 4,891 4,166 100,000 6,244 5,519 100,000 7,959 7,234 100,000
8 1,000 10,027 5,532 4,981 100,000 7,286 6,735 100,000 9,601 9,049 100,000
9 1,000 11,578 6,157 5,780 100,000 8,367 7,990 100,000 11,405 11,027 100,000
10 1,000 13,207 6,761 6,761 100,000 9,484 9,484 100,000 13,384 13,384 100,000
11 1,000 14,917 7,342 7,342 100,000 10,637 10,637 100,000 15,555 15,555 100,000
12 1,000 16,713 7,900 7,900 100,000 11,826 11,826 100,000 17,936 17,936 100,000
13 1,000 18,599 8,432 8,432 100,000 13,050 13,050 100,000 20,547 20,547 100,000
14 1,000 20,579 8,939 8,939 100,000 14,311 14,311 100,000 23,414 23,414 100,000
15 1,000 22,657 9,419 9,419 100,000 15,610 15,610 100,000 26,561 26,561 100,000
16 1,000 24,840 9,872 9,872 100,000 16,948 16,948 100,000 30,019 30,019 100,000
17 1,000 27,132 10,300 10,300 100,000 18,328 18,328 100,000 33,823 33,823 100,000
18 1,000 29,539 10,703 10,703 100,000 19,753 19,753 100,000 38,010 38,010 100,000
19 1,000 32,066 11,079 11,079 100,000 21,223 21,223 100,000 42,621 42,621 100,000
20 1,000 34,719 11,429 11,429 100,000 22,739 22,739 100,000 47,702 47,702 100,000
@ 65 1,000 69,761 12,458 12,458 100,000 40,249 40,249 100,000 137,471 137,471 167,715
</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%
(includes mortality and expense risk charge of 0.8% 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 GIA providing interest at
a minimum guaranteed rate of 4% also is available under this product through the
General Account.
This illustration assumes a premium tax of 2.25%.
73
<PAGE>
<TABLE>
<CAPTION>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY PAGE 2 OF 2
STATUTORY HOME OFFICE: EAST GREENBUSH, NEW YORK
FACE AMOUNT: $100,000
FEMALE 35 NEVERSMOKE INITIAL ANNUAL PREMIUM: $1,000
THE FLEX EDGE--A FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY OPTION 1
ASSUMING GUARANTEED CHARGES
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>
1 1,000 1,050 553 0 100,000 598 0 100,000 643 0 100,000
2 1,000 2,153 1,236 356 100,000 1,366 486 100,000 1,501 621 100,000
3 1,000 3,310 1,897 942 100,000 2,156 1,201 100,000 2,436 1,481 100,000
4 1,000 4,526 2,536 1,581 100,000 2,967 2,012 100,000 3,454 2,499 100,000
5 1,000 5,802 3,150 2,195 100,000 3,800 2,845 100,000 4,563 3,608 100,000
6 1,000 7,142 3,741 2,900 100,000 4,655 3,815 100,000 5,771 4,931 100,000
7 1,000 8,549 4,305 3,579 100,000 5,529 4,803 100,000 7,086 6,360 100,000
8 1,000 10,027 4,842 4,291 100,000 6,424 5,873 100,000 8,519 7,968 100,000
9 1,000 11,578 5,355 4,977 100,000 7,342 6,964 100,000 10,084 9,706 100,000
10 1,000 13,207 5,842 5,842 100,000 8,282 8,282 100,000 11,793 11,793 100,000
11 1,000 14,917 6,304 6,304 100,000 9,247 9,247 100,000 13,663 13,663 100,000
12 1,000 16,713 6,741 6,741 100,000 10,236 10,236 100,000 15,709 15,709 100,000
13 1,000 18,599 7,151 7,151 100,000 11,249 11,249 100,000 17,950 17,950 100,000
14 1,000 20,579 7,533 7,533 100,000 12,285 12,285 100,000 20,404 20,404 100,000
15 1,000 22,657 7,886 7,886 100,000 13,347 13,347 100,000 23,095 23,095 100,000
16 1,000 24,840 8,208 8,208 100,000 14,430 14,430 100,000 26,046 26,046 100,000
17 1,000 27,132 8,498 8,498 100,000 15,537 15,537 100,000 29,284 29,284 100,000
18 1,000 29,539 8,752 8,752 100,000 16,664 16,664 100,000 32,839 32,839 100,000
19 1,000 32,066 8,965 8,965 100,000 17,809 17,809 100,000 36,744 36,744 100,000
20 1,000 34,719 9,138 9,138 100,000 18,973 18,973 100,000 41,037 41,037 100,000
@ 65 1,000 69,761 8,204 8,204 100,000 31,617 31,617 100,000 117,581 117,581 143,450
</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%
(includes mortality and expense risk charge of 0.8% 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 GIA providing interest at
a minimum guaranteed rate of 4% also is available under this product through the
General Account.
This illustration assumes a premium tax of 2.25%.
74
<PAGE>
<TABLE>
<CAPTION>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY PAGE 1 OF 2
STATUTORY HOME OFFICE: EAST GREENBUSH, NEW YORK
FACE AMOUNT: $100,000
MALE 35 NEVERSMOKE INITIAL ANNUAL PREMIUM: $1,000
THE FLEX EDGE--A FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY OPTION 2
ASSUMING CURRENT CHARGES
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>
1 1,000 1,050 613 0 100,613 660 0 100,661 707 0 100,708
2 1,000 2,153 1,358 447 101,358 1,495 584 101,495 1,638 727 101,639
3 1,000 3,310 2,082 1,080 102,083 2,357 1,355 102,358 2,656 1,654 102,656
4 1,000 4,526 2,786 1,759 102,787 3,248 2,220 103,248 3,768 2,740 103,768
5 1,000 5,802 3,469 2,441 103,469 4,166 3,139 104,167 4,983 3,956 104,984
6 1,000 7,142 4,130 3,226 104,130 5,113 4,209 105,114 6,311 5,407 106,312
7 1,000 8,549 4,767 3,986 104,767 6,087 5,306 106,087 7,760 6,979 107,761
8 1,000 10,027 5,378 4,784 105,378 7,086 6,493 107,087 9,340 8,747 109,341
9 1,000 11,578 5,964 5,558 105,964 8,112 7,706 108,112 11,065 10,659 111,065
10 1,000 13,207 6,524 6,524 106,525 9,165 9,165 109,165 12,947 12,947 112,948
11 1,000 14,917 7,058 7,058 107,059 10,244 10,244 110,245 15,002 15,002 115,002
12 1,000 16,713 7,559 7,559 107,560 11,345 11,345 111,345 17,239 17,239 117,240
13 1,000 18,599 8,026 8,026 108,027 12,465 12,465 112,465 19,675 19,675 119,676
14 1,000 20,579 8,458 8,458 108,458 13,603 13,603 113,603 22,328 22,328 122,329
15 1,000 22,657 8,851 8,851 108,851 14,757 14,757 114,757 25,216 25,216 125,217
16 1,000 24,840 9,204 9,204 109,205 15,924 15,924 115,925 28,360 28,360 128,361
17 1,000 27,132 9,517 9,517 109,518 17,105 17,105 117,105 31,785 31,785 131,786
18 1,000 29,539 9,786 9,786 109,786 18,295 18,295 118,295 35,514 35,514 135,515
19 1,000 32,066 10,006 10,006 110,007 19,489 19,489 119,489 39,573 39,573 139,573
20 1,000 34,719 10,173 10,173 110,174 20,681 20,681 120,681 43,988 43,988 143,988
@ 65 1,000 69,761 7,924 7,924 107,924 31,091 31,091 131,091 116,100 116,100 216,100
</TABLE>
Based on 0% interest rate and guaranteed charges, the Policy will lapse in year
32.
Death benefit, account value and Cash Surrender Value are based on hypothetical
gross interest rates shown, assume current and guaranteed charges and no Policy
loans or withdrawals, and are calculated at the end of the Policy Year. Assumed
Premium Payments shown are assumed paid in full at the beginning of the Policy
Year. Payment of premiums shown other than in full at the beginning of the
Policy Year would reduce values and benefits below the hypothetical illustrated
amounts shown. Values shown reflect an effective annual asset charge of 1.84%
(includes mortality and expense risk charge of 0.8% 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 GIA providing interest at
a minimum guaranteed rate of 4% also is available under this product through the
General Account.
This illustration assumes a premium tax of 2.25%.
75
<PAGE>
<TABLE>
<CAPTION>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY PAGE 2 OF 2
STATUTORY HOME OFFICE: EAST GREENBUSH, NEW YORK
FACE AMOUNT: $100,000
MALE 35 NEVERSMOKE INITIAL ANNUAL PREMIUM: $1,000
THE FLEX EDGE--A FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY OPTION 2
ASSUMING GUARANTEED CHARGES
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>
1 1,000 1,050 530 0 100,530 574 0 100,575 619 0 100,619
2 1,000 2,153 1,191 280 101,191 1,317 406 101,318 1,450 539 101,450
3 1,000 3,310 1,829 826 101,829 2,080 1,078 102,080 2,353 1,351 102,353
4 1,000 4,526 2,443 1,415 102,443 2,862 1,834 102,862 3,334 2,307 103,335
5 1,000 5,802 3,032 2,005 103,033 3,661 2,634 103,662 4,400 3,372 104,400
6 1,000 7,142 3,596 2,691 103,596 4,479 3,574 104,479 5,557 4,653 105,557
7 1,000 8,549 4,131 3,350 104,132 5,311 4,530 105,312 6,812 6,031 106,812
8 1,000 10,027 4,639 4,046 104,640 6,160 5,566 106,160 8,174 7,580 108,174
9 1,000 11,578 5,117 4,711 105,117 7,022 6,616 107,022 9,651 9,245 109,652
10 1,000 13,207 5,565 5,565 105,566 7,898 7,898 107,899 11,255 11,255 111,256
11 1,000 14,917 5,980 5,980 105,981 8,785 8,785 108,785 12,995 12,995 112,995
12 1,000 16,713 6,361 6,361 106,362 9,680 9,680 109,681 14,881 14,881 114,881
13 1,000 18,599 6,707 6,707 106,707 10,583 10,583 110,584 16,927 16,927 116,927
14 1,000 20,579 7,015 7,015 107,015 11,492 11,492 111,493 19,146 19,146 119,146
15 1,000 22,657 7,283 7,283 107,284 12,402 12,402 112,403 21,552 21,552 121,552
16 1,000 24,840 7,509 7,509 107,510 13,312 13,312 113,313 24,161 24,161 124,162
17 1,000 27,132 7,688 7,688 107,689 14,215 14,215 114,215 26,987 26,987 126,987
18 1,000 29,539 7,813 7,813 107,814 15,103 15,103 115,103 30,044 30,044 130,045
19 1,000 32,066 7,880 7,880 107,880 15,969 15,969 115,969 33,349 33,349 133,349
20 1,000 34,719 7,879 7,879 107,880 16,803 16,803 116,803 36,917 36,917 136,918
@ 65 1,000 69,761 2,683 2,683 102,683 20,994 20,994 120,994 92,049 92,049 192,049
</TABLE>
Based on 0% interest rate and guaranteed charges, the Policy will lapse in year
32.
Death benefit, account value and Cash Surrender Value are based on hypothetical
gross interest rates shown, assume current and guaranteed charges and no Policy
loans or withdrawals, and are calculated at the end of the Policy Year. Assumed
Premium Payments shown are assumed paid in full at the beginning of the Policy
Year. Payment of premiums shown other than in full at the beginning of the
Policy Year would reduce values and benefits below the hypothetical illustrated
amounts shown. Values shown reflect an effective annual asset charge of 1.84%
(includes mortality and expense risk charge of 0.8% 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 GIA providing interest at
a minimum guaranteed rate of 4% also is available under this product through the
General Account.
This illustration assumes a premium tax of 2.25%.
76
<PAGE>
<TABLE>
<CAPTION>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY PAGE 1 OF 2
STATUTORY HOME OFFICE: EAST GREENBUSH, NEW YORK
FACE AMOUNT: $100,000
FEMALE 35 NEVERSMOKE INITIAL ANNUAL PREMIUM: $1,000
THE FLEX EDGE--A FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY OPTION 2
ASSUMING CURRENT CHARGES
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>
1 1,000 1,050 629 0 100,629 676 0 100,677 724 0 100,724
2 1,000 2,153 1,387 507 101,388 1,526 646 101,527 1,672 791 101,672
3 1,000 3,310 2,125 1,170 102,125 2,404 1,449 102,405 2,707 1,752 102,707
4 1,000 4,526 2,841 1,886 102,841 3,310 2,355 103,310 3,838 2,883 103,839
5 1,000 5,802 3,535 2,580 103,536 4,244 3,289 104,245 5,074 4,119 105,075
6 1,000 7,142 4,208 3,367 104,208 5,207 4,367 105,208 6,425 5,584 106,425
7 1,000 8,549 4,860 4,134 104,860 6,202 5,476 106,202 7,903 7,177 107,903
8 1,000 10,027 5,491 4,939 105,491 7,228 6,677 107,229 9,520 8,969 109,521
9 1,000 11,578 6,104 5,727 106,105 8,290 7,913 108,291 11,294 10,917 111,295
10 1,000 13,207 6,695 6,695 106,695 9,384 9,384 109,385 13,234 13,234 113,235
11 1,000 14,917 7,261 7,261 107,262 10,510 10,510 110,510 15,356 15,356 115,357
12 1,000 16,713 7,801 7,801 107,802 11,665 11,665 111,666 17,674 17,674 117,675
13 1,000 18,599 8,314 8,314 108,314 12,850 12,850 112,850 20,208 20,208 120,208
14 1,000 20,579 8,798 8,798 108,798 14,063 14,063 114,064 22,976 22,976 122,976
15 1,000 22,657 9,252 9,252 109,253 15,306 15,306 115,307 26,001 26,001 126,001
16 1,000 24,840 9,677 9,677 109,677 16,577 16,577 116,578 29,308 29,308 129,308
17 1,000 27,132 10,073 10,073 110,074 17,880 17,880 117,881 32,926 32,926 132,927
18 1,000 29,539 10,442 10,442 110,442 19,215 19,215 119,216 36,887 36,887 136,887
19 1,000 32,066 10,780 10,780 110,781 20,582 20,582 120,582 41,222 41,222 141,223
20 1,000 34,719 11,088 11,088 111,089 21,979 21,979 121,980 45,969 45,969 145,969
@ 65 1,000 69,761 11,374 11,374 111,374 36,523 36,523 136,524 125,851 125,851 225,851
</TABLE>
Based on 0% interest rate and guaranteed charges, the Policy will lapse in year
37.
Death benefit, account value and Cash Surrender Value are based on hypothetical
gross interest rates shown, assume current and guaranteed charges and no Policy
loans or withdrawals, and are calculated at the end of the Policy Year. Assumed
Premium Payments shown are assumed paid in full at the beginning of the Policy
Year. Payment of premiums shown other than in full at the beginning of the
Policy Year would reduce values and benefits below the hypothetical illustrated
amounts shown. Values shown reflect an effective annual asset charge of 1.84%
(includes mortality and expense risk charge of 0.8% 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 GIA providing interest at
a minimum guaranteed rate of 4% also is available under this product through the
General Account.
This illustration assumes a premium tax of 2.25%.
77
<PAGE>
<TABLE>
<CAPTION>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY PAGE 2 OF 2
STATUTORY HOME OFFICE: EAST GREENBUSH, NEW YORK
FACE AMOUNT: $100,000
FEMALE 35 NEVERSMOKE INITIAL ANNUAL PREMIUM: $1,000
THE FLEX EDGE--A FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY OPTION 2
ASSUMING GUARANTEED CHARGES
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>
1 1,000 1,050 552 0 100,552 597 0 100,597 642 0 100,643
2 1,000 2,153 1,233 353 101,233 1,362 482 101,363 1,497 617 101,498
3 1,000 3,310 1,891 936 101,891 2,148 1,193 102,149 2,427 1,472 102,428
4 1,000 4,526 2,525 1,570 102,525 2,954 1,999 102,955 3,438 2,483 103,439
5 1,000 5,802 3,133 2,178 103,134 3,779 2,824 103,779 4,537 3,582 104,537
6 1,000 7,142 3,716 2,875 103,716 4,623 3,782 104,623 5,730 4,889 105,730
7 1,000 8,549 4,270 3,544 104,270 5,483 4,757 105,483 7,024 6,289 107,024
8 1,000 10,027 4,796 4,244 104,796 6,360 5,808 106,360 8,430 7,878 108,430
9 1,000 11,578 5,295 4,917 105,295 7,255 6,877 107,255 9,958 9,581 109,959
10 1,000 13,207 5,766 5,766 105,767 8,168 8,168 108,169 11,622 11,622 111,622
11 1,000 14,917 6,211 6,211 106,211 9,100 9,100 109,100 13,433 13,433 113,433
12 1,000 16,713 6,627 6,627 106,628 10,049 10,049 110,0050 15,405 15,405 115,406
13 1,000 18,599 7,014 7,014 107,015 11,015 11,015 111,016 17,553 17,553 117,554
14 1,000 20,579 7,370 7,370 107,371 11,997 11,997 111,997 19,892 19,892 119,893
15 1,000 22,657 7,695 7,695 107,696 12,993 12,993 112,994 22,441 22,441 122,441
16 1,000 24,840 7,985 7,985 107,986 14,001 14,001 114,002 25,216 25,216 125,216
17 1,000 27,132 8,239 8,239 108,240 15,019 15,019 115,020 28,237 28,237 128,238
18 1,000 29,539 8,454 8,454 108,455 16,043 16,043 116,044 31,527 31,527 131,527
19 1,000 32,066 8,625 8,625 108,625 17,068 17,068 117,068 35,104 35,104 135,105
20 1,000 34,719 8,751 8,751 108,751 18,091 18,091 118,092 38,998 38,998 138,999
@ 65 1,000 69,761 7,124 7,124 107,124 27,606 27,606 127,607 103,449 103,449 203,450
</TABLE>
Based on 0% interest rate and guaranteed charges, the Policy will lapse in year
37.
Death benefit, account value and Cash Surrender Value are based on hypothetical
gross interest rates shown, assume current and guaranteed charges and no Policy
loans or withdrawals, and are calculated at the end of the Policy Year. Assumed
Premium Payments shown are assumed paid in full at the beginning of the Policy
Year. Payment of premiums shown other than in full at the beginning of the
Policy Year would reduce values and benefits below the hypothetical illustrated
amounts shown. Values shown reflect an effective annual asset charge of 1.81%
(includes mortality and expense risk charge of 0.8% and average fund operating
expenses of 1.01% 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 GIA 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%.
78
