VARIABLE INSURANCE
ADDITIONS RIDER
Issued by
PHOENIX HOME LIFE MUTUAL
INSURANCE COMPANY
IF YOU HAVE ANY QUESTIONS, PLEASE CONTACT US AT:
[envelope] PHOENIX VARIABLE PRODUCTS MAIL OPERATIONS
PO Box 8027
Boston, MA 02266-8027
[telephone] Tel. 800/541-0171
PROSPECTUS MAY 1, 1999
AS SUPPLEMENTED JULY 15, 1999
AND DECEMBER 20, 1999
This prospectus describes a Variable Insurance Additions Rider (the "Rider").
The Rider provides Variable Insurance Additions (VIA) that are in addition to
the base coverage under the single whole life policy whose death benefit and
cash value do not vary according to the performance of the Subaccounts (the
"Policy").
THE PHOENIX EDGE SERIES FUND
MANAGED BY PHOENIX INVESTMENT COUNSEL, INC.
[Dianmond] Phoenix-Aberdeen International Series
[Dianmond] Phoenix-Engemann Capital Growth Series
[Dianmond] Phoenix-Engemann Nifty Fifty Series
[Dianmond] Phoenix-Goodwin Money Market Series
[Dianmond] Phoenix-Goodwin Multi-Sector Fixed Income Series
[Dianmond] Phoenix-Hollister Value Equity Series
[Dianmond] Phoenix-Oakhurst Balanced Series
[Dianmond] Phoenix-Oakhurst Growth and Income Series
[Dianmond] Phoenix-Oakhurst Strategic Allocation Series
[Dianmond] Phoenix-Seneca Mid-Cap Growth Series
[Dianmond] Phoenix-Seneca Strategic Theme Series
MANAGED BY PHOENIX-ABERDEEN INTERNATIONAL ADVISORS, LLC
[Dianmond] Phoenix-Aberdeen New Asia Series
MANAGED BY DUFF & PHELPS INVESTMENT MANAGEMENT CO.
[Dianmond] Phoenix-Duff & Phelps Real Estate Securities Series
MANAGED BY PHOENIX VARIABLE ADVISORS, INC.
[Dianmond] Phoenix Research Enhanced Index Series
[Dianmond] Phoenix-Bankers Trust Dow 30 Series
[Dianmond] Phoenix-Federated U.S. Government Bond Series
[Dianmond] Phoenix-Janus Equity Income Series
[Dianmond] Phoenix-Janus Flexible Income Series
[Dianmond] Phoenix-Janus Growth Series
[Dianmond] Phoenix-Morgan Stanley Focus Equity Series
[Dianmond] Phoenix-Schafer Mid-Cap Value Series
BT INSURANCE FUNDS TRUST
MANAGED BY BANKERS TRUST COMPANY
[Dianmond] EAFE[registered trademark] Equity Index FunD
FEDERATED INSURANCE SERIES
MANAGED BY FEDERATED INVESTMENT MANAGEMENT COMPANY
[Dianmond] Federated Fund for U.S. Government Securities II
[Dianmond] Federated High Income Bond Fund II
MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.
MANAGED BY MORGAN STANLEY DEAN WITTER INVESTMENT MANAGEMENT INC.
[Dianmond] Technology Portfolio
TEMPLETON VARIABLE PRODUCTS SERIES FUND
MANAGED BY TEMPLETON INVESTMENT COUNSEL, INC.
[Dianmond] Templeton Asset Allocation Fund -- Class 2
[Dianmond] Templeton International Fund -- Class 2
[Dianmond] Templeton Stock Fund -- Class 2
MANAGED BY TEMPLETON ASSET MANAGEMENT, LTD.
[Dianmond] Templeton Developing Markets Fund -- Class 2
MANAGED BY FRANKLIN MUTUAL ADVISERS, LLC
[Dianmond] Mutual Shares Investments Fund -- Class 2
WANGER ADVISORS TRUST
MANAGED BY WANGER ASSET MANAGEMENT, L.P.
[Dianmond] Wanger Foreign Forty
[Dianmond] Wanger International Small Cap
[Dianmond] Wanger Twenty
[Dianmond] Wanger U.S. Small Cap
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This prospectus is valid only if accompanied or preceded by current
prospectuses for the funds. You should read and keep these prospectuses for
future reference.
The Rider is not a deposit or obligation of, underwritten or guaranteed by,
any financial institution or credit union. It is not federally insured or
endorsed by the Federal Deposit Insurance Corporation or any other state or
federal agency. Rider investments are subject to risk, including the fluctuation
of cash values and possible loss of principal.
The Securities and Exchange Commission has not approved or disapproved these
securities, nor passed upon the accuracy or adequacy of this prospectus. Any
representation to the contrary is a criminal offense.
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TABLE OF CONTENTS
Heading Page
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VARIABLE INSURANCE ADDITIONS RIDER........................ 1
TABLE OF CONTENTS......................................... 3
SPECIAL TERMS............................................. 4
SUMMARY................................................... 5
PERFORMANCE HISTORY....................................... 6
PHOENIX AND THE VUL ACCOUNT............................... 6
Phoenix................................................ 6
The VUL Account ....................................... 6
THE RIDER ................................................ 6
Introduction .......................................... 6
Eligible Purchasers ................................... 6
Purchase of VIAs ...................................... 6
Subaccount Allocation.................................. 6
Transfer of Rider Cash Value........................... 6
Determination of Subaccount Values..................... 7
Death Benefit.......................................... 7
Surrenders............................................. 7
Rider Loans............................................ 8
Termination of the Rider............................... 8
INVESTMENTS OF THE VUL ACCOUNT............................ 8
Participating Investment Funds......................... 8
Investment Advisors.................................... 10
Services of the Advisors............................... 11
Reinvestment and Redemption............................ 11
Substitution of Investments............................ 11
CHARGES AND DEDUCTIONS.................................... 11
General................................................ 11
Periodic Charges....................................... 12
Investment Management Charge........................... 12
Other Charges--Taxes................................... 12
GENERAL PROVISIONS........................................ 12
Postponement of Payments............................... 12
Change of Owner or Beneficiary......................... 12
PAYMENT OF PROCEEDS....................................... 13
Surrender and Death Benefit Proceeds................... 13
FEDERAL TAX CONSIDERATIONS................................ 13
Introduction........................................... 13
Phoenix's Tax Status................................... 13
Rider Benefits......................................... 13
Diversification Standards.............................. 13
Other Taxes............................................ 14
VOTING RIGHTS............................................. 14
The Funds.............................................. 14
Phoenix................................................ 14
THE DIRECTORS AND EXECUTIVE OFFICERS OF PHOENIX........... 14
SAFEKEEPING OF THE VUL ACCOUNT'S ASSETS .................. 15
SALES OF POLICIES ........................................ 15
STATE REGULATION ......................................... 16
REPORTS .................................................. 16
LEGAL PROCEEDINGS ........................................ 16
LEGAL MATTERS ............................................ 16
REGISTRATION STATEMENT ................................... 16
YEAR 2000 ISSUE........................................... 16
FINANCIAL STATEMENTS ..................................... 16
APPENDIX A ............................................... 56
APPENDIX B................................................ 60
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THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT BE LAWFULLY MADE. NO DEALER, SALESPERSON OR OTHER PERSON
IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS IN CONNECTION
WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND IF GIVEN
OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON.
---------------------------
The Rider is not available in all States.
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SPECIAL TERMS
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The following is a list of terms and their meanings when used in this
prospectus.
BENEFICIARY: The person or persons specified by the Owner as entitled to receive
the death benefits under a Policy.
CONVERSION DATE: The Valuation Date on or next following the Rider Date.
FUND(S): The Phoenix Edge Series Fund, BT Insurance Funds Trust, Federated
Insurance Series, Morgan Stanley Dean Witter Universal Funds, Inc., Templeton
Variable Products Series Fund and Wanger Advisors Trust.
GENERAL ACCOUNT: The general asset account of Phoenix.
IN FORCE: Condition under which the coverage under a Rider 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.
MONTHLY CALCULATION DAY: The first Monthly Calculation Day is the Conversion
Date. Subsequent Monthly Calculation Days are the Valuation Dates on or next
following the same day of each month as the Policy Date of Issue. If a month
ends before reaching that day, the Monthly Calculation Day will be the Valuation
Date on or next following the last day of the month.
NET ASSET VALUE: The worth of one share of a Series of a Fund at the end of a
Valuation Period. Net Asset Value is computed by adding the value of all a
Series' holding plus other assets, minus liabilities and then dividing the
result by the number of shares outstanding.
PAID-UP ADDITIONS: Nonvariable paid-up additions as described in the Policy.
PAYMENT DATE: The Valuation Date on which we receive a premium payment or loan
repayment, 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 (WE OUR, US, COMPANY): Phoenix Home Life Mutual Insurance Company,
Hartford, Connecticut.
POLICYOWNER (OWNER, YOU, YOUR): The owner of a single life traditional insurance
policy.
PROPORTIONATE (PRO RATA): Amounts allocated to Subaccounts on a pro rata basis
are allocated by increasing (or decreasing) a Rider'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.
RIDER: Variable Insurance Additions Rider.
RIDER CASH VALUE: The cash value of the VIAs. It is the sum of a Rider's share
in the value of each Subaccount.
RIDER DATE: The effective date of the Rider as shown on the first page of the
Rider.
SERIES: A separate investment portfolio of the Fund.
SUBACCOUNTS: Accounts within Phoenix's VUL Account to which assets under the
Rider are allocated.
UNIT: A standard of measurement used in determining the value of a Rider. The
value of a Unit for each Subaccount will reflect the investment performance of
that Subaccount and will vary in dollar amounts.
VALUATION DATE: For any Subaccount, each date on which we calculate the Net
Asset Value of the Fund.
VALUATION PERIOD: For any Subaccount, the period in days from the end of one
Valuation Date through the next.
VIAS (VARIABLE INSURANCE ADDITIONS): Units of variable insurance that are in
addition to the insurance under the Policy.
VPMO: The Variable Products Mail Operation Division of Phoenix that receives and
processes incoming mail for Variable Products Operations.
VPO: Variable Products Operations.
VUL ACCOUNT (ACCOUNT): Phoenix Home Life Variable Universal Life Account, a
separate account of the company.
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SUMMARY
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This is a summary of the Rider and does not contain all of the detailed
information that may be important to you. You should read the entire Prospectus
carefully before making any decision.
INVESTMENT FEATURES
PURCHASE OF VIAS
On the Conversion Date, the Policy Paid-up Additions will be canceled, and
the Cash Value will be used to purchase VIAs. After the Conversion Date, the
Policy annual dividends will be used to purchase additional VIAs. These annual
dividends do not include Paid-Up Additions dividends.
SUBACCOUNT ALLOCATION
Amounts purchasing VIAs will be allocated to the VUL Account Subaccounts
according to the Rider election form allocation schedule, or as last changed by
you. You may change the allocation schedule by telephone or in writing to VPMO.
REDEMPTIONS
[diamond] Generally, the Rider may not be used as collateral for policy loans.
However, when a Policy loan is processed, some VIAs may be surrendered
to increase the Policy's maximum loan value. Surrenders of some VIAs
will not apply to automatic premium loans under the Policy.
[diamond] Partial or full surrenders may be taken anytime provided that you
submit a Written Request to VPMO. The full surrender amount is the
Rider Cash Value at the end of the Valuation Period in which the
request is received.
INSURANCE PROTECTION FEATURE
DEATH BENEFIT
The death benefit amount will equal the Rider Cash Value divided by a net
single premium factor. That factor represents the premium rate at the Insured's
current age for one dollar of paid up life insurance. It is based on the
mortality and interest rates stated in the Policy's Basis of Calculations.
DEDUCTIONS AND CHARGES
FROM RIDER CASH VALUE
A monthly cost of insurance charge will be assessed from the Rider Cash
Value to compensate us for the cost of insurance.
FROM THE VUL ACCOUNT
A charge for certain mortality and expense risks of .50% annually will be
assessed from the VUL Account to compensate for certain risks assumed in
connection with the Rider.
FROM THE FUND
The assets of the VUL Account are used to purchase, at Net Asset Value,
shares of a designated underlying Fund. This Net Asset Value reflects investment
management fees and other direct expenses. See "Investment Management Charge."
ADDITIONAL INFORMATION
TERMINATION OF THE RIDER
The Rider will cancel upon Policy surrender, Policy lapse or full surrender
of the VIAs.
TAX EFFECTS
Generally, under current federal income tax law, death benefits are not
subject to income tax and Rider Cash Value earnings are not subject to income
tax unless there is a distribution from the Policy. Loans, partial surrenders or
Policy cancellation may result in recognition of income for tax purposes.
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PERFORMANCE HISTORY
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We may include the performance history of the VUL Account 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. See "Appendix A" for more information.
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. Our executive office is
at One American Row, Hartford, Connecticut 06102-5056 and our main
administrative office is at 100 Bright Meadow Boulevard, Enfield, Connecticut
06083-1900. Our New York principal office is at 10 Krey Boulevard, East
Greenbush, New York 12144. We sell insurance policies and annuity contracts
through our own field force of full-time agents and through brokers.
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 Rider Cash Value. If in the future we determine that marketing
needs and investment conditions warrant, we may establish additional
Subaccounts, which will be made available to existing Policy or Rider owners to
the extent and on a basis determined by Phoenix. Each Subaccount will invest
solely in shares of the Funds allocable to one of the available portfolios, each
having the specified investment objective set forth under "Investments of the
VUL Account--Participating Investment Funds."
We do not guarantee the investment performance of the VUL Account or any of
its Subaccounts. The Rider Cash Value depends on the investment performance of
the Fund. Therefore, you bear 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. However, 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 we may conduct. Nevertheless
all obligations arising under the Rider are general corporate obligations of
Phoenix.
THE RIDER
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INTRODUCTION
The Rider is a Variable Insurance Additions Rider. VIAs have a death benefit
and cash value as is associated with traditional Paid-Up Additions. VIAs differ
from traditional Paid-Up Additions, however, because you specify in which of
several Subaccounts of the VUL Account the VIA's Cash Value is to be allocated.
Each Subaccount of the VUL Account, in turn, invests its assets exclusively in a
series of the Fund. The Rider's death benefit and Cash Value vary reflecting the
investment performance of the Series to which the Rider Cash Value has been
allocated.
ELIGIBLE PURCHASERS
You may elect to add VIAs if the Policy has been In Force for at least two
years, the dividend option is Paid-Up Additions, the nonloaned Paid-Up Additions
cash value are at least $1,000, and you have not previously elected and canceled
the Rider.
PURCHASE OF VIAS
On the Conversion Date, any Paid-up Additions under the Policy will be
canceled, and their cash value applied to purchase VIAs. After the Conversion
Date any annual dividends apportioned to the Policy will be applied to purchase
additional VIAs. Such annual dividends do not include dividends on any Paid-up
Additions.
SUBACCOUNT ALLOCATION
Any amount applied to purchase VIAs will be allocated to the Subaccounts of
the VUL Account according to the asset allocation schedule in the Rider election
form, or as last changed by you. You may change the allocation schedule by
telephone or in writing.
TRANSFER OF RIDER CASH VALUE
You may transfer all or some of the Rider Cash Value among the Subaccounts
by telephone or in writing.
You may request transfers among available Subaccounts in writing or by
calling 800/541-0171, between the hours of 8:30 a.m. and 4:00 p.m. Eastern Time.
Unless you elect in writing not to authorize telephone transfers, telephone
transfer orders also will be accepted from your registered representative.
Phoenix and Phoenix Equity Planning Corporation ("PEPCO") will employ reasonable
procedures to confirm those telephone instructions are genuine. They will
require address verification, identical account registrations and will record
telephone instructions on tape. All telephone exchanges will be confirmed in
writing to you. To the extent that procedures reasonably designed to prevent
unauthorized transfers are not followed, Phoenix
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and PEPCO may be liable for following telephone instructions for transfers that
are fraudulent. However, you would bear the risk of loss resulting from
instructions entered by an unauthorized third party that Phoenix and PEPCO
reasonably believe to be genuine. The telephone transfer privilege may be
modified or canceled at anytime, and during times of extreme market volatility,
it may be difficult to exercise. In such cases, you should submit a Written
Request.
We reserve the right to limit the number of transfers made each year while
the Rider is In Force. However, you will be permitted at least six transfers
each year while the Rider is In Force. In addition, we reserve the right to set
a minimum transfer amount not to exceed $500. A transfer will take effect on the
date the request is received at VPMO.
We reserve the right to limit the number of Subaccounts you may elect to a
total of 18 at any one time and/or over the life of the Rider unless required to
be less to comply with changes in federal and/or state regulation, including
tax, securities and insurance law.
DETERMINATION OF SUBACCOUNT VALUES
On each Valuation Date, the Rider's share in the value of each Subaccount is
determined separately, but the valuation method used is the same for each
Subaccount. A Rider's share in the value of a Subaccount on any Valuation Date
equals:
(a) The Rider's share in the value of that Subaccount as of the immediately
preceding Valuation Date multiplied by the "Net Investment Factor" of
that Subaccount for the current Valuation Period; plus
(b) All amounts transferred to the Rider's share in the value of that
Subaccount from another Subaccount; plus
(c) All amounts applied to purchase VIAs allocated to that Subaccount during
the current Valuation Period; minus
(d) All amounts transferred from the Rider's share in the value of that
Subaccount to another Subaccount during the current Valuation Period;
minus
(e) Any portion of the monthly deduction allocated to the Rider's share in
the value of that Subaccount during the current Valuation Period; minus
(f) All reductions in the Rider Cash Value allocated to the Rider's share in
the value of that Subaccount due to any partial surrenders made during
the current Valuation Period.
The Net Investment Factor for each Subaccount for any Valuation Period is
determined by dividing (a) by (b), and subtracting (c) from the result where:
(a) is the result of:
(i) the Net Asset Value of the Fund shares held by that Subaccount
determined as of the end of the current Valuation Period
(exclusive of the net value of any transactions during the current
Valuation Period); plus
(ii) the amount of any dividend (or, if applicable, any capital gain
distribution) made by the Fund on shares held by that Subaccount
if the "ex-dividend" date occurs during the current Valuation
Period; plus/minus
(iii) the charge or credit for any taxes incurred by or provided for in
that Subaccount for the current Valuation Period.
(b) the Net Asset Value of the Fund shares held by that Subaccount
determined as of the end of the immediately preceding Valuation Period.
(c) is a factor, equal to the sum of .50% annually held by that Subaccount,
representing the Mortality and Expense Risk Charge deducted from that
Subaccount during the Valuation Period.
The Net Investment Factor may be greater than, less than or equal to one.
Therefore, the Rider Cash Value may increase, decrease or remain unchanged.
DEATH BENEFIT
The death benefit amount will equal the Rider Cash Value divided by a net
single premium factor. That factor represents the premium rate at the Insured's
current age for one dollar of paid up life insurance. It is based on the
mortality and interest rates stated in the Policy's Basis of Calculations. The
net single premium is based on the attained age and sex of the Insured and on
the interest rate and mortality table stated in the Policy's Basis of
Calculations section.
Upon receipt of due proof of death of the Insured while this Rider is In
Force, we will pay the VIA death benefit according to the terms of the Policy.
SURRENDERS
Anytime during the lifetime of the Insured and while the Rider is in force,
you may partially or fully surrender the Rider by sending a written request. The
amount available for surrender is the Rider Cash Value at the end of the
Valuation Period during which the surrender request is received at VPMO.
Upon partial or full surrender, we generally will pay the amount surrendered
to you within seven days after we receive 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."
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RIDER LOANS
VIAs may not be assigned as collateral for policy loans. The Rider Cash
Value is not directly included in the loan value of the Policy. However, when an
increase in the maximum loan value of the Policy is needed to process the full
amount of a policy loan request or to secure indebtedness under the Policy,
Paid-Up Additions, having cash value included in the Policy's loan value, will
be purchased through the automatic release and surrender of some VIAs to the
extent needed for the resultant cash value of the Paid-Up Additions to
sufficiently increase the Policy's maximum loan value. This automatic release
and surrender of a portion of the VIAs to increase the Policy's maximum loan
value will not apply to automatic premium loans under the Policy. Fund shares
will be surrendered on a pro rata basis unless otherwise instructed.
VIAs canceled due to a release and surrender to increase the Policy's
maximum loan value through the purchase of Paid-Up Additions may not later be
restored either directly or through loan repayment.
TERMINATION OF THE RIDER
The Rider and any VIAs provided will terminate upon the earliest of any of
the events listed below:
(a) Policy surrender;
(b) Policy lapse;
(c) full surrender of existing VIAs;
(d) our receipt of a Written Request from you to cancel the Rider.
INVESTMENTS OF THE VUL ACCOUNT
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PARTICIPATING INVESTMENT FUNDS
THE PHOENIX EDGE SERIES FUND
Certain Subaccounts invest in corresponding series of The Phoenix Edge
Series Fund. The following series are currently available:
PHOENIX RESEARCH ENHANCED INDEX SERIES: The investment objective of the
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 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.
PHOENIX-ABERDEEN INTERNATIONAL SERIES: The investment objective of the
series is to seek a high total return consistent with reasonable risk. The
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
Phoenix-Aberdeen International Series provides a means for investors to invest a
portion of their assets outside the United States.
PHOENIX-ABERDEEN NEW ASIA SERIES: The investment objective of the series is
to seek long-term capital appreciation. The series invests primarily in a
diversified portfolio of equity securities of issuers organized and principally
operating in Asia, excluding Japan.
PHOENIX-BANKERS TRUST DOW 30 SERIES: The series seeks to track the total
return of the Dow Jones Industrial Average(SM) (the "DJIA(SM)") before fund
expenses.
PHOENIX-DUFF & PHELPS REAL ESTATE SECURITIES SERIES: The investment
objective of the 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.
PHOENIX-ENGEMANN CAPITAL GROWTH SERIES: The investment objective of the
series is to achieve intermediate and long-term growth of capital, with income
as a secondary consideration. The Phoenix-Engemann Capital Growth Series invests
principally in common stocks of corporations believed by management to offer
growth potential.
PHOENIX-ENGEMANN NIFTY FIFTY SERIES: The investment objective of the 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.
PHOENIX-FEDERATED U.S. GOVERNMENT BOND SERIES: The investment objective of
the series is to maximize total return by investing primarily in debt
obligations of the U.S. Government, its agencies and instrumentalities.
PHOENIX-GOODWIN MONEY MARKET SERIES: The investment objective of the series
is to provide maximum current income consistent with capital preservation and
liquidity. The Phoenix-Goodwin Money Market Series invests exclusively in high
quality money market instruments.
PHOENIX-GOODWIN MULTI-SECTOR FIXED INCOME SERIES: The investment objective
of the series is to seek long-term total return. The Phoenix-Goodwin
Multi-Sector Fixed Income Series seeks to achieve its investment objective by
investing in a diversified portfolio of high yield and high quality fixed income
securities.
PHOENIX-HOLLISTER VALUE EQUITY SERIES: The primary investment objective of
the series is long-term capital
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appreciation, with a secondary investment objective of current income. The
Phoenix-Hollister Value Equity 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.
PHOENIX-JANUS EQUITY INCOME SERIES: The investment objective of the series
is to seek current income and long-term growth of capital.
PHOENIX-JANUS FLEXIBLE INCOME SERIES: The investment objective of the series
is to seek to obtain maximum total return, consistent with preservation of
capital.
PHOENIX-JANUS GROWTH SERIES: The investment objective of the series is to
seek long-term growth of capital, in a manner consistent with the preservation
of capital.
PHOENIX-MORGAN STANLEY FOCUS EQUITY SERIES: The investment objective of the
series is to seek capital appreciation by investing primarily in equity
securities.
PHOENIX-OAKHURST BALANCED SERIES: The investment objective of the series is
to seek reasonable income, long-term capital growth and conservation of capital.
The Phoenix-Oakhurst Balanced Series invests based on combined considerations of
risk, income, capital enhancement and protection of capital value.
PHOENIX-OAKHURST GROWTH AND INCOME SERIES: The investment objective of the
series is to seek dividend growth, current income and capital appreciation by
investing in common stocks. The Phoenix-Oakhurst Growth and 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-OAKHURST STRATEGIC ALLOCATION SERIES: The investment objective of
the 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
Phoenix-Oakhurst Strategic Allocation Series invests in stocks, bonds and money
market instruments in accordance with the Investment Advisor's appraisal of
investments most likely to achieve the highest total return.
PHOENIX-SCHAFER MID-CAP VALUE SERIES: The primary investment objective of
the series is to seek long-term capital appreciation, with current income as the
secondary investment objective. The Phoenix-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.
PHOENIX-SENECA MID-CAP GROWTH SERIES: The investment objective of the 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-SENECA STRATEGIC THEME SERIES: The investment objective of the
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
Phoenix-Seneca Strategic Theme Series invests primarily in common stocks
believed to have substantial potential for capital growth.
BT INSURANCE FUNDS TRUST
A certain Subaccount invests in a corresponding series of the BT Insurance
Funds Trust. The following series is currently available:
EAFE[registered trademark] EQUITY INDEX FUNd: The series seeks to match the
performance of the Morgan Stanley Capital International EAFE[registered
trademark] Index ("EAFE[registered trademark] Index"), which emphasizes major
market stock performance of companies in Europe, Australia and the Far East. The
series invests in a statistically selected sample of the securities found in the
EAFE[registered trademark] Index.
FEDERATED INSURANCE SERIES
Certain Subaccounts invest in corresponding series of the Federated
Insurance Series. The following Series are currently available:
FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES II: The investment objective
of the series is current income by investing primarily in U.S. government
securities, including mortgage-backed securities issued by U.S. government
agencies.
FEDERATED HIGH INCOME BOND FUND II: The investment objective of the series
is to seek high current income by investing primarily in a diversified portfolio
of high-yield, lower-rated corporate bonds.
MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.
A certain subaccount invests in a corresponding series of the Morgan Stanley
Dean Witter Universal Funds, Inc. The following series is currently available:
TECHNOLOGY PORTFOLIO: The investment objective of the series is to seek
long-term capital appreciation by investing primarily in equity securities of
companies that the investment advisor expects to benefit from their involvement
in technology and technology-related industries.
TEMPLETON VARIABLE PRODUCTS SERIES FUND
Certain Subaccounts invest in Class 2 shares of the corresponding series of
the Templeton Variable Products Series Fund. The following Series are currently
available:
MUTUAL SHARES INVESTMENTS FUND: The primary investment objective of the
series is capital appreciation with income as a secondary objective. The Mutual
Shares Investment Fund invests in domestic equity securities that the manager
believes are significantly undervalued.
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<PAGE>
TEMPLETON ASSET ALLOCATION FUND: The investment objective of the series is a
high level of total return. The Templeton Asset Allocation Fund invests in
stocks of companies of any nation, bonds 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, including emerging market countries.
TEMPLETON DEVELOPING MARKETS FUND: The investment objective of the series is
long-term capital appreciation. The Templeton Developing Markets Fund invests
primarily in emerging market equity securities.
TEMPLETON INTERNATIONAL FUND: The investment objective of the series is
long-term capital growth. The Templeton International Fund invests in primarily
stocks of companies located outside the United States, including emerging
markets.
TEMPLETON STOCK FUND: The investment objective of the series is long-term
capital growth. The Templeton Stock Fund invests primarily in common stocks
issued by companies in various nations throughout the world, including the U.S.
and emerging markets.
WANGER ADVISORS TRUST
Certain Subaccounts invest in corresponding series of the Wanger Advisors
Trust. The following series are currently available:
WANGER FOREIGN FORTY: The investment objective of the series is to seek
long-term capital growth. The Wanger Foreign Forty Series invests primarily in
equity securities of foreign companies with market capitalization of $1 billion
to $10 billion and focuses its investments in 40 to 60 companies in the
developed markets.
WANGER INTERNATIONAL SMALL CAP: The investment objective of the series is to
seek long-term capital growth. The Wanger 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: The investment objective of the series is to seek long-term
capital growth. The Wanger Twenty Series invests primarily in the stocks of U.S.
companies with market capitalization of $1 billion to $10 billion and ordinarily
focuses its investments in 20 to 25 U.S. companies.
WANGER U.S. SMALL CAP: The investment objective of the series is to seek
long-term capital growth. The Wanger U.S. Small Cap Series invests primarily in
securities of U.S. companies with total common stock market capitalization of
less than $1 billion.
Each series will be subject to market fluctuations and the risks that come
with the ownership of any security and there can be no assurance that any series
will achieve its stated investment objective.
In addition to being sold to the Account, shares of the funds also may be
sold to other separate accounts of Phoenix or its affiliates or to the separate
accounts of other insurance companies.
It is possible 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)
trustees 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 to such
conflicts. Material conflicts could, for example, result from (1) changes in
state insurance laws, (2) changes in federal income tax laws, (3) changes in the
investment management of any portfolio of the fund(s) or (4) differences in
voting instructions between those given by variable life insurance Policyowners
and those given by variable annuity Contract Owners. Phoenix will, at its own
expense, remedy such material conflicts including, if necessary, segregating the
assets underlying the variable life insurance policies and the variable annuity
contracts and establishing a new registered investment company.
INVESTMENT ADVISORS
Phoenix Investment Counsel, Inc. ("PIC") is an investment advisor to the
following series in The Phoenix Edge Series Fund:
[bullet] Phoenix-Goodwin Money Market Series
[bullet] Phoenix-Goodwin Multi-Sector Fixed Income Series
[bullet] Phoenix-Hollister Value Equity Series
[bullet] Phoenix-Oakhurst Balanced Series
[bullet] Phoenix-Oakhurst Growth and Income Series
[bullet] Phoenix-Oakhurst Strategic Allocation Series
Based on subadvisory agreements with the fund, PIC as an investment advisor
delegates certain investment decisions and research functions to subadvisors for
the following series:
[diamond] Phoenix-Aberdeen International Advisors, LLC ("PAIA")
[bullet] Phoenix-Aberdeen International Series
[diamond] Roger Engemann & Associates, Inc. ("Engemann")
[bullet] Phoenix-Engemann Capital Growth Series
[bullet] Phoenix-Engemann Nifty Fifty Series
[diamond] Seneca Capital Management, LLC ("Seneca")
[bullet] Phoenix-Seneca Mid-Cap Growth Series
[bullet] Phoenix-Seneca Strategic Theme Series
Phoenix Variable Advisors, Inc. ("PVA") is also an investment advisor to The
Phoenix Edge Series Fund. Based on subadvisory agreements with the fund, PVA
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<PAGE>
delegates certain investment decisions and research functions to the following
subadvisors for the series listed:
[diamond] Bankers Trust Company
[bullet] Phoenix-Bankers Trust Dow 30 Series
[diamond] Federated Investment Management Company
[bullet] Phoenix-Federated U.S. Government Bond Series
[diamond] J.P. Morgan Asset Management, Inc.
[bullet] Phoenix Research Enhanced Index Series
[diamond] Janus Capital Corporation
[bullet] Phoenix-Janus Equity Income Series
[bullet] Phoenix-Janus Flexible Income Series
[bullet] Phoenix-Janus Growth Series
[diamond] Morgan Stanley Asset Management Inc.
[bullet] Phoenix-Morgan Stanley Focus Equity Series
[diamond] Schafer Capital Management, Inc.
[bullet] Phoenix-Schafer Mid-Cap Value Series
The investment advisor to the Phoenix-Duff & Phelps Real Estate Securities
Series is Duff & Phelps Investment Management Co. ("DPIM").
The investment advisor to the Phoenix-Aberdeen New Asia Series is PAIA.
Pursuant to subadvisory agreements with the fund, PAIA delegates certain
investment decisions and research functions with respect to the Phoenix-Aberdeen
New 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 by Aberdeen Fund Managers, Inc. PVA is a wholly
owned subsidiary of PM Holdings, Inc.
The other investment advisors and their respective funds are:
[diamond] Bankers Trust Company
[bullet] EAFE[registered trademark] Equity Index Fund
[diamond] Federated Investment Management Company
[bullet] Federated Fund for U.S. Government Securities II
[bullet] Federated High Income Bond Fund II
[diamond] Franklin Mutual Advisers, LLC
[bullet] Mutual Shares Investments Fund
[diamond] Morgan Stanley Dean Witter Investment Management Inc.
[bullet] Technology Portfolio
[diamond] Templeton Asset Management, Ltd.
[bullet] Templeton Developing Markets Fund
[diamond] Templeton Investment Counsel, Inc.
[bullet] Templeton Asset Allocation Fund
[bullet] Templeton International Fund
[bullet] Templeton Stock Fund
[diamond] Wanger Asset Management, L.P.
[bullet] Wanger Foreign Forty
[bullet] Wanger International Small Cap
[bullet] Wanger Twenty
[bullet] Wanger U.S. Small Cap
SERVICES OF THE ADVISORS
The Advisors continually 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 advisors and subadvisors, and the investment
advisory and subadvisory agreements, is contained in the accompanying Fund
prospectuses.
REINVESTMENT AND REDEMPTION
All dividend distributions of the funds are automatically reinvested in
shares of the funds at their Net Asset Value on the date of distribution; all
capital gains distributions of the funds, if any, are likewise reinvested at the
Net Asset Value on the record date. Phoenix redeems fund shares at their Net
Asset Value to the extent necessary to make payments under the Rider.
SUBSTITUTION OF INVESTMENTS
We reserve 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, we may
establish additional Subaccounts within the VUL Account, each of which will
invest in shares of a designated series of the funds with a specified investment
objective. These series will be established if, and when, in our sole
discretion, 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 us.
Should shares of any series of the Funds no longer be available for
investment, or if in our judgment, further investment in shares of any of the
series should become inappropriate in view of the objectives of the Rider, then
we may substitute shares of another mutual fund for shares already purchased, or
to be purchased in the future, under the Rider. No substitution of mutual fund
shares held by the VUL Account may take place without prior approval of the SEC
and prior notice to you. In case of a substitution, you will be given the option
of transferring the Rider Cash Value of the Subaccount in which the substitution
is to occur to another Subaccount.
CHARGES AND DEDUCTIONS
- --------------------------------------------------------------------------------
GENERAL
Charges are deducted in connection with the Rider to compensate us for:
[diamond] providing the insurance benefits set forth in the Rider; and
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<PAGE>
[diamond] assuming certain risks in connection with the Rider.
The nature and amount of these charges are more fully described in sections
below.
PERIODIC CHARGES
MONTHLY
[diamond] COST OF INSURANCE. A charge is deducted monthly from the Rider Cash
Value under a Rider ("monthly deduction") to compensate us for the
cost of insurance. The monthly deduction is deducted on each Monthly
Calculation Day. It is allocated among the Subaccounts of the VUL
Account based on the allocation schedule for monthly deductions that
you specify in the Rider election form or as later changed by you.
Because portions of the monthly deduction can vary from month to
month, the monthly deduction itself may vary in amounts from month to
month.
Because the cost of insurance depends upon many variables, this charge
can vary from month to month. Each monthly deduction will pay for the
cost of insurance from that Monthly Calculation Day up to, but not
including, the next Monthly Calculation Day. The cost of insurance is
equal to the cost of insurance rate for that policy month multiplied
by the result of:
(a) the VIA's Death Benefit on the Monthly Calculation Day; minus
(b) the Rider Cash Value on the Monthly Calculation Day.
Cost of insurance rates are based on the sex (in most states),
attained age and risk class of the Insured. The actual monthly cost of
insurance rates are based on Phoenix's expectations of future
experience. They will not, however, be greater than the guaranteed
cost of insurance rates set forth in the Rider. These guaranteed rates
are based on the 1980 Commissioners Standard Ordinary Mortality Table
with appropriate adjustment for the Insured's risk classification. Any
change in the cost of insurance rates will apply to all persons of the
same insurance age, sex and risk class whose Policies have been in
force for the same length of time.
The risk class of an Insured for the Rider will be identical to that
of the base Policy.
DAILY
[diamond] MORTALITY AND EXPENSE RISK CHARGE. We will deduct a daily charge of
0.0000137% from the VUL Account at an annual rate of 0.50% of the
average daily net assets of the VUL Account to compensate for certain
risks assumed in connection with the Rider.
The mortality risk assumed by us 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 the expense incurred in issuing and administering the Riders
will exceed the level assumed by Phoenix in pricing the Rider.
To the extent Phoenix profits from this charge, it may use those
profits for any proper purpose, such as the payment of expenses that
may exceed income in a given year.
INVESTMENT MANAGEMENT CHARGE
As compensation for investment management services to the Funds, the
advisors are entitled to fees, payable monthly and based on an annual percentage
of the average aggregate daily net asset values of each Series.
These Fund charges and other expenses are described more fully in the
accompanying Fund Prospectuses.
OTHER CHARGES--TAXES
Currently no charge is made to the VUL Account for federal income taxes that
may be attributable to the VUL Account. We may, however, make such a charge in
the future. Charges for other taxes, if any, attributable to the VUL Account
also may be made.
GENERAL PROVISIONS
- --------------------------------------------------------------------------------
POSTPONEMENT OF PAYMENTS
Payment of any amount upon full or partial surrender, or benefits payable at
death may be postponed:
[diamond] 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
[diamond] 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.
CHANGE OF OWNER OR BENEFICIARY
The designated Beneficiary will receive the Rider 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 you,
the benefits payable at the Insured's death will be paid to your estate.
As long as the Rider is in force, you may change the Beneficiary by written
notice. A change in Beneficiary will take effect as of the date the notice is
signed, whether or not the Insured is living when the notice is received by us.
We will not, however, be liable for any payment made or action taken before
receipt of the notice.
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PAYMENT OF PROCEEDS
- --------------------------------------------------------------------------------
SURRENDER AND DEATH BENEFIT PROCEEDS
Proceeds of full or partial surrenders and the death benefit proceeds
usually will be paid according to the terms of the Policy and Rider. Payment of
the death benefit proceeds, however, may be delayed if the claim for payment of
the death benefit proceeds needs to be investigated; e.g., to ensure payment of
the proper amount to the proper payee. Any such delay will not be beyond that
reasonably necessary to investigate such claims consistent with insurance
practices customary in the life insurance industry.
While the Insured is living, you may elect a payment option for payment of
the death benefit proceeds to the Beneficiary. You may revoke or change a prior
election, unless such right has been waived. The Beneficiary may make or change
an election before payment of the death benefit proceeds, unless you have made
an election which does not permit such further election or changes by the
Beneficiary.
A written request is required to elect, change or revoke a payment option.
The minimum amount of surrender or death benefit proceeds that may be
applied under any option is $1,000.
If the Rider is assigned as collateral security, we will pay any amount due
the assignee in one lump sum. Any remaining proceeds will remain under the
option elected.
FEDERAL TAX CONSIDERATIONS
- --------------------------------------------------------------------------------
INTRODUCTION
The ultimate effect of federal income taxes on values under the VUL Account
and on the economic benefit to you or the Beneficiary depends on our 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 advisor
should be consulted. No attempt is made to consider any estate and inheritance
taxes, or any state, local or other tax laws. Because the discussion herein is
based upon our understanding of federal income tax laws as they are currently
interpreted, we cannot guarantee the tax status of any Rider. No representation
is made regarding the likelihood of continuation of current federal income tax
laws, Treasury regulations, or of the current interpretations by the Internal
Revenue Service (the "Service"). We reserve the right to make changes to the
Rider in order to assure that it will continue to qualify as life insurance for
federal income tax purposes.
PHOENIX'S TAX STATUS
We are taxed as a life insurance company under the Internal Revenue Code of
1986 (the "Code"), as amended. For federal income tax purposes, the VUL Account
is not a separate entity from Phoenix and its operation forms 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 us. Due to our tax status under current
provisions of the Code, no charge currently will be made to the VUL Account for
our federal income taxes which may be attributable to the VUL Account. We
reserve the right to make a deduction for taxes if our federal tax treatment is
determined to be other than what we currently believe it to be, if changes are
made affecting the tax treatment to our variable life insurance contracts, or if
changes occur in our tax status. If imposed, such charge would be equal to the
federal income taxes attributable to the investment results of the VUL Account.
RIDER BENEFITS
FULL AND PARTIAL SURRENDERS
Upon surrender of the Rider for any part of its cash value, a portion of the
cash value released may be treated as ordinary income for federal income tax
purposes. Such taxable amount will generally not exceed the excess, if any, of
the total cash value of the Policy and Rider over the total premiums paid.
DIVERSIFICATION STANDARDS
To comply with the Diversification Regulations under Code Section 817(h)
("Diversification Regulations"), each Series of the Funds is required to
diversify its investments. The Diversification Regulations generally require
that on the last day of each quarter of a calendar year no more than 55% of the
value of the Funds' assets is represented by any one investment, no more than
70% is represented by any two investments, no more than 80% is represented by
any three investments, and no more than 90% is represented by any four
investments. A "look through" rule applies to treat a pro rata portion of each
asset of the Funds as an asset of the VUL Account; therefore, each Series of the
Funds will be tested for compliance with the percentage limitations. For
purposes of these diversification rules, all securities of the same issuer are
treated as a single investment, but each United States Government agency or
instrumentality is treated as a separate issuer.
The general diversification requirements are modified if any of the assets
of the VUL Account are direct obligations of the 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
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<PAGE>
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 Rider owners may direct their investments to particular
divisions of a separate account. It is possible that a revenue ruling or other
form of an administrative pronouncement in this regard may be issued. It is not
clear, at this time, what such a revenue ruling or other pronouncement will
provide. It is possible that the Rider may need to be modified to comply with
such future Treasury pronouncements. For these reasons, we reserve the right to
modify the Rider, as necessary, to prevent you from being considered the Owner
of the assets of the VUL Account.
We intend to comply with the Diversification Regulations to assure that the
Rider continues to qualify as life insurance for federal income tax purposes.
OTHER TAXES
Federal estate tax, state and local estate, inheritance and other tax
consequences of ownership, or receipt of Rider proceeds depend on the
circumstances of each Owner or Beneficiary. We do not make any representations
or guarantees regarding the tax consequences of any Rider with respect to these
types of taxes.
VOTING RIGHTS
- --------------------------------------------------------------------------------
THE FUNDS
We will vote the Fund shares held by the Subaccounts of the VUL Account at
any regular and special meetings of shareholders of the Funds. To the extent
required by law, such voting will be according to instructions received from
you. However, if the 1940 Act or any regulation thereunder should be amended or
if the present interpretation thereof should change, and as a result we
determine that it is permitted to vote the Fund shares at its own discretion, we
may elect to do so.
The number of votes that you have the right to cast will be determined by
applying your percentage interest in a Subaccount to the total number of votes
attributable to the Subaccount. In determining the number of votes, fractional
shares will be recognized.
Fund shares held in a Subaccount for which no timely instructions are
received, and Fund shares which are not otherwise attributable to Owners, will
be voted by us in proportion to the voting instructions that are received with
respect to all variable life insurance policies and Riders 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 us.
You will receive proxy materials, reports, and other materials relating to
the Funds.
We may, when required by state insurance regulatory authorities, disregard
voting instructions if the instructions require that the shares be voted so as
to cause a change in the subclassification or investment objective of one or
more of the Series of the Funds or to approve or disapprove an investment
advisory contract for the Funds. In addition, we may disregard voting
instructions in favor of changes initiated by an Owner in the investment
policies or the investment advisor of a Fund if we reasonably disapprove such
changes. A change would be disapproved only if the proposed change is contrary
to state law or prohibited by state regulatory authorities or we determine that
the change would adversely effect the General Account because the proposed
investment policy for a series may result in overly speculative or unsound
investments. In the event we do disregard voting instructions, a summary of that
action and the reasons for such action will be included in the next periodic
report to Rider Owners.
PHOENIX
You (or the payee entitled to payment under a payment option if a different
person) will have the right to vote at annual meetings of all 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 or Rider, irrespective of Policy or
Rider Value or the number of the Policies or Riders held.
THE DIRECTORS AND
EXECUTIVE OFFICERS OF PHOENIX
- --------------------------------------------------------------------------------
Phoenix is managed by its Board of Directors. 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
John C. Bacot Chairman and Chief Executive
Officer, The Bank of New York
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
Arthur P. Byrne Chairman, President and Chief
Executive Officer,
The Wiremold Company
West Hartford, Connecticut
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<PAGE>
Richard N. Cooper Professor of International
Economics, Harvard University;
Cambridge, Massachusetts; 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
John E. Haire President of The Fortune Group
New York, New York
Jerry J. Jasinowski President, National Association of
Manufacturers
Washington, D.C.
John W. Johnstone Chairman, Governance & Nominating
Committees, Arch Chemicals, Inc.,
Westport, Connecticut, formerly
Chairman, President and Chief
Executive Officer, Olin Corporation
Norwalk, Connecticut
Marilyn E. LaMarche Limited Managing Director,
Lazard Freres & Company, L.L.C.
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 Retired, formerly 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
Philip R. McLoughlin Executive Vice President and
Chief Investment Officer
Richard H. Booth Executive Vice President
Carl T. Chadburn Executive Vice President
David W. Searfoss Executive Vice President and
Chief Financial Officer
Dona D. Young Executive Vice President,
Individual Insurance and
General Counsel
Kelly J. Carlson Senior Vice President,
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 Financial
Maura L. Melley Senior Vice President,
Public Affairs
David R. Pepin Senior Vice President
Robert E. Primmer Senior Vice President,
Individual Distribution
Frederick W. Sawyer, III Senior Vice President
Jack F. Solan, Jr. Senior Vice President,
Strategic Development
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 position at Phoenix during the last five
years.
SAFEKEEPING OF THE VUL ACCOUNT'S ASSETS
- --------------------------------------------------------------------------------
The assets of the VUL Account are held by us. The assets of the VUL Account
are kept physically segregated and held separate and apart from the General
Account of Phoenix. We maintain records of all purchases and redemptions of
shares of the Funds.
SALES OF POLICIES
- --------------------------------------------------------------------------------
The Rider will be sold as a dividend option to the underlying Policy by
individuals who are licensed life insurance agents of Phoenix and registered
representatives of W.S. Griffith & Co., Inc. ("W.S. Griffith"), a
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<PAGE>
corporation formed under the laws of the state of New York on August 7, 1970,
licensed to sell Phoenix insurance 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. ("NASD"). PEPCO serves as national distributor of the
Riders. PEPCO is an indirect subsidiary of Phoenix Investment Partners, Ltd., in
which Phoenix owns a majority interest. In the future, riders may be sold
through other broker-dealers registered under the 1934 Act. No commissions are
payable for the sale of a VIA.
STATE REGULATION
- --------------------------------------------------------------------------------
We are 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. We also are subject to the applicable
insurance laws of all other states and jurisdictions in which we do insurance
business.
State regulation of Phoenix includes certain limitations on the investments
which it may make, including investments for the Account. It does not include,
however, any supervision over the investment policies of the Account.
REPORTS
- --------------------------------------------------------------------------------
All Owners 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. We are not involved in any
litigation that would have an adverse effect on our ability to meet our
obligations under the Riders.
LEGAL MATTERS
- --------------------------------------------------------------------------------
Edwin L. Kerr, Counsel of Phoenix Home Life Mutual Insurance Company, has
passed upon the organization of Phoenix, its authority to issue variable life
insurance Policies and the validity of the Policy, and upon legal matters
relating to the federal securities and income tax laws for Phoenix.
REGISTRATION STATEMENT
- --------------------------------------------------------------------------------
A Registration Statement has been filed with the SEC, under the Securities
Act of 1933 ("1933 Act") as amended, with respect to the securities offered
hereby. This Prospectus does not contain all the information set forth in the
Registration Statement and amendments thereto and exhibits filed as a part
thereof, to all of which reference is hereby made for further information
concerning the VUL Account, Phoenix and the Rider. Statements contained in this
Prospectus as to the content of the Rider 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 called 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. We believe that the Year 2000
Issue is an important business priority requiring careful analysis of every
business system to be assured that all information systems applications are
century compliant.
We have 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, were conducted. We have identified and are
now actively pursuing many strategies to address the issue, including:
[diamond] upgrading systems with compliant versions;
[diamond] developing or acquiring new systems to replace those that are
obsolete;
[diamond] and remediating existing systems by converting code or hardware.
Based on current assessments, we expect to have our computer systems
remediated and tested by June 1999. In addition, we are examining the status of
our third-party vendors, obtaining assurances that their software and hardware
products will be century compliant by the end of 1999.
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The consolidated financial statements of Phoenix as contained herein should
be considered only as bearing upon our ability to meet our obligations under the
Rider, and they should not be considered as bearing on the investment
performance of the VUL Account. The financial statements of the VUL Account are
not yet available.
16
<PAGE>
PHOENIX HOME LIFE MUTUAL
INSURANCE COMPANY
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
17
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Report of Independent Accountants.............................................19
Consolidated Balance Sheet at December 31, 1998 and 1997......................20
Consolidated Statement of Income, Comprehensive Income and Equity
for the Years Ended December 31, 1998, 1997 and 1996 ........................21
Consolidated Statement of Cash Flows for the Years Ended
December 31, 1998, 1997 and 1996.............................................22
Notes to Consolidated Financial Statements ................................23-54
18
<PAGE>
[PRICEWATERHOUSECOOPERS logo and address]
REPORT OF INDEPENDENT ACCOUNTANTS
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, comprehensive 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,
1998 and 1997, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1998, 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.
As indicated in Note 19, the company has revised the accounting for leveraged
leases.
/s/ PricewaterhouseCoopers LLP
February 11, 1999, except as to Note 20, which is as of April 27, 1999
19
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
CONSOLIDATED BALANCE SHEET
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1997
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Investments:
Held-to-maturity debt securities, at amortized cost $ 1,881,687 $ 1,554,905
Available-for-sale debt securities, at fair value 6,693,540 5,659,061
Equity securities, at fair value 304,545 335,888
Mortgage loans 797,343 927,501
Real estate 91,975 321,757
Policy loans 2,008,260 1,986,728
Other invested assets 377,326 319,088
Short-term investments 240,911 1,078,276
----------- -----------
Total investments 12,395,587 12,183,204
Cash and cash equivalents 132,634 159,307
Accrued investment income 173,312 149,566
Deferred policy acquisition costs 1,076,635 1,038,407
Premiums, accounts and notes receivable 120,928 99,468
Reinsurance recoverables 96,676 66,649
Property and equipment, net 153,425 156,190
Goodwill and other intangible assets, net 527,029 541,499
Other assets 46,060 61,087
Separate account assets 4,798,949 4,082,255
----------- -----------
Total assets $19,521,235 $18,537,632
=========== ===========
LIABILITIES
Policy liabilities and accruals $11,810,202 $11,334,014
Securities sold subject to repurchase agreements 137,473
Notes payable 449,252 471,085
Deferred income taxes 111,912 150,440
Other liabilities 555,352 585,467
Separate account liabilities 4,798,949 4,082,255
----------- -----------
Total liabilities 17,725,667 16,760,734
----------- -----------
Contingent liabilities (Note 17)
MINORITY INTEREST IN NET ASSETS
OF CONSOLIDATED SUBSIDIARIES
91,884 136,514
----------- -----------
EQUITY
Retained earnings 1,609,393 1,484,620
Accumulated other comprehensive income 94,291 155,764
----------- -----------
Total equity 1,703,684 1,640,384
----------- -----------
Total liabilities and equity $19,521,235 $18,537,632
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
20
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
CONSOLIDATED STATEMENT OF INCOME, COMPREHENSIVE INCOME AND EQUITY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1997 1996
(IN THOUSANDS)
<S> <C> <C> <C>
REVENUES
Premiums $1,852,801 $1,640,606 $1,518,822
Insurance and investment product fees 619,476 468,030 421,058
Net investment income 898,884 771,346 711,595
Net realized investment gains 63,562 111,465 77,422
---------- ---------- ----------
Total revenues 3,434,723 2,991,447 2,728,897
---------- ---------- ----------
BENEFITS, LOSSES AND EXPENSES
Policy benefits, claims, losses and loss
adjustment expenses 1,930,384 1,633,633 1,529,573
Policyholder dividends 351,805 343,725 311,739
Policy acquisition expenses 290,585 192,886 172,379
Amortization of goodwill and other intangible assets 29,248 16,393 15,610
Interest expense 29,889 28,147 17,570
Other operating expenses 592,420 542,897 489,203
---------- ---------- ----------
Total benefits, losses and expenses 3,224,331 2,757,681 2,536,074
---------- ---------- ----------
INCOME BEFORE INCOME TAXES AND MINORITY INTEREST 210,392 233,766 192,823
Income taxes 75,152 58,177 80,683
---------- ---------- ----------
INCOME BEFORE MINORITY INTEREST 135,240 175,589 112,140
Minority interest in net income of consolidated subsidiaries 10,467 8,882 8,902
---------- ---------- ----------
NET INCOME 124,773 166,707 103,238
---------- ---------- ----------
OTHER COMPREHENSIVE INCOME, NET OF INCOME TAXES
Unrealized (losses) gains on securities (46,967) 98,287 42,493
Reclassification adjustment for net realized gains
included in net income (12,980) (30,213) (28,580)
Minimum pension liability adjustment (1,526) (2,101) 1,241
---------- ---------- ----------
Total other comprehensive income (loss) (61,473) 65,973 15,154
---------- ---------- ----------
COMPREHENSIVE INCOME 63,300 232,680 118,392
---------- ---------- ----------
EQUITY, BEGINNING OF YEAR - RESTATED (NOTE 19) 1,640,384 1,407,704 1,289,312
---------- ---------- ----------
EQUITY, END OF YEAR $1,703,684 $1,640,384 $1,407,704
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
21
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1997 1996
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net income $ 124,773 $ 166,707 $ 103,238
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED BY OPERATIONS
Net realized investment gains (63,562) (111,465) (77,422)
Amortization and depreciation 60,580 90,565 64,870
Equity in undistributed earnings of affiliates and partnerships (25,110) (34,057) (22,037)
Deferred income taxes (benefit) (9,274) 3,663 16,126
(Increase) decrease in receivables (75,233) (49,172) 5,955
Increase in deferred policy acquisition costs (31,534) (48,860) (61,985)
Increase in policy liabilities and accruals 487,312 512,476 559,724
Increase (decrease) in other assets/other liabilities, net 53,194 44,269 (66,337)
Other, net 3,412 5,417 (320)
--------- ---------- ----------
Net cash provided by operating activities 524,558 579,543 521,812
--------- ---------- ----------
CASH FLOW FROM INVESTING ACTIVITIES
Proceeds from sales, maturities or repayments
of available-for-sale debt securities 1,446,990 1,187,943 1,348,809
Proceeds from maturities or repayments of held-to-maturity
debt securities 306,183 217,302 118,596
Proceeds from disposals of equity securities 45,204 51,373 382,359
Proceeds from mortgage loan maturities or repayments 200,419 164,213 151,760
Proceeds from sale of real estate and other invested assets 458,467 218,874 127,440
Purchase of available-for-sale debt securities (2,568,971) (1,689,479) (1,909,086)
Purchase of held-to-maturity debt securities (631,974) (225,722) (385,321)
Purchase of equity securities (86,472) (88,573) (215,104)
Purchase of subsidiaries (6,647) (246,400)
Purchase of mortgage loans (75,974) (140,831) (200,683)
Purchase of real estate and other invested assets (201,424) (90,593) (157,077)
Change in short-term investments, net 837,365 58,384 110,503
Increase in policy loans (21,532) (59,699) (49,912)
Capital expenditures (23,935) (41,504) (3,543)
Other investing activities, net (6,540) (1,750) (5,898)
--------- ---------- ----------
Net cash used for investing activities (328,841) (686,462) (687,157)
--------- ---------- ----------
CASH FLOW FROM FINANCING ACTIVITIES
Withdrawals of contractholder deposit funds,
net of deposits and interest credited (11,124) (17,902) (6,301)
(Repayment of)/proceeds from securities sold
subject to repurchase agreements (137,472) 137,472
Proceeds from borrowings 136 215,359 226,082
Repayment of borrowings (63,328) (234,703) (2,400)
Dividends paid to minority shareholders in consolidated subsidiaries (4,938) (6,895) (6,245)
Other financing activities (5,664)
--------- ---------- ----------
Net cash provided by (used for) financing activities (222,390) 93,331 211,136
--------- ---------- ----------
NET CHANGE IN CASH AND CASH EQUIVALENTS (26,673) (13,588) 45,791
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 159,307 172,895 127,104
--------- ---------- ----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 132,634 $ 159,307 $ 172,895
========= ========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION
Income taxes paid, net $ 44,508 $ 76,167 $ 76,157
Interest paid on indebtedness $ 32,834 $ 32,300 $ 19,214
</TABLE>
The accompanying notes are an integral part of these statements.
22
<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 and insurance
agency and brokerage operations, primarily based in the United States. These
products and services are distributed among five reportable segments:
Individual Insurance, Life Reinsurance, Group Life and Health Insurance,
Securities Management and All Other. 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 significant influence over operating and financial policies and
generally at least a 20% ownership interest 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.
Amounts for 1997 and 1996 have been retroactively restated to account for
income from leveraged lease investments (see Note 19). Certain
reclassifications have been made to the 1997 and 1996 amounts to conform
with the 1998 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 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 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.
23
<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.
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. These earnings or losses are
included in investment income. Prior to 1998, for venture capital
partnerships, this activity was reflected in capital gains and losses. Such
earnings and losses included in prior year financial statements have been
reclassified to reflect this change.
Beginning in 1998, leveraged lease investments represent the net of the
estimated residual value of the lease assets, rental receivables, and
unearned and deferred income to be allocated over the lease term. Investment
income is calculated using the interest method and is recognized only in
periods in which the net investment is positive. Prior to 1998, leveraged
lease investments were carried at cost adjusted for Phoenix's equity in
undistributed earnings or losses since acquisition, less allowances for
other than temporary declines in value. Prior years have been restated to
reflect these changes (see Note 19).
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 component of 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, off-balance sheet
financial instruments such as investment and loan commitments, financial
guarantees, interest rate swaps and interest rate floors. These instruments
have credit risk and also may be subject to risk of loss due to interest
rate and market fluctuations.
Phoenix also uses interest rate swaps and futures contracts as hedges for
asset/liability management of fixed income investments and certain
liabilities. Realized gains and losses on these contracts are deferred and
amortized over the life of the hedged asset or liability.
Phoenix enters into interest rate floor contracts to hedge against
significant declines in interest rates by locking in a minimum interest rate
amount that will be received on future reinvestments in terms of an
underlying treasury yield. Phoenix does not enter into interest rate floor
contracts for trading purposes. The excess of a predetermined (strike) rate
over a reference (index) rate is recognized in investment income when
received or paid.
24
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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.
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.
25
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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.
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 1998 and prior
years. Entities included within the consolidated group are segregated into
either a life insurance or nonlife insurance company subgroup. The
consolidation of these subgroups is subject to certain statutory
restrictions in the percentage of eligible nonlife 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.
RECENT ACCOUNTING PRONOUNCEMENTS
Phoenix adopted Statement of Financial Accounting Standard (SFAS) No. 130,
"Reporting Comprehensive Income," as of January 1, 1998. This statement
establishes standards for the reporting and display of comprehensive income
and its components in a full set of financial statements. This statement
defines the components of comprehensive income as those items that were
previously reported only as components of equity and were excluded from net
income.
In 1998, Phoenix adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." This statement supersedes SFAS No. 14,
"Financial Reporting for Segments of a
26
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Business Enterprise," replacing the "industry segment" approach with the
"management" approach. The management approach designates the internal
organization that is used by management for making operating decisions and
assessing performance as the source of Phoenix's reportable segments. The
adoption of this statement did not affect the results of operations or
financial position but did affect the disclosure of segment information.
In 1998, Phoenix adopted SFAS No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits," which amends SFAS No. 87,
"Employers' Accounting for Pensions," No. 88, "Employers' Accounting for
Settlements and Curtailments of Defined Benefit Pension Plans and for
Termination Benefits," and No. 106, "Employers' Accounting for
Postretirement Benefits Other than Pensions." The new statement revises and
standardizes employers' disclosures about pension and other postretirement
benefit plans. Adoption of this statement did not affect the results of
operations or financial position of the company.
On June 15, 1998, The Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." This
statement, effective for all years beginning after June 15, 1999, requires
that all derivative instruments be recorded on the balance sheet at their
fair value. Changes in the fair value of derivatives are recorded each
period in current earnings or other comprehensive income, depending on
whether a derivative is designed as part of a hedge transaction and, if it
is, the type of hedge transaction. Management anticipates that, due to its
limited use of derivative instruments, the adoption of this statement will
not have a significant effect on Phoenix's results of operations or its
financial position.
3. SIGNIFICANT TRANSACTIONS
DIVIDEND SCALE REDUCTION
Due to the decline of interest rates in the financial markets to historic
lows and the strong likelihood that such levels will be sustained, Phoenix
carefully reviewed and considered a change in its dividend scale. As a
result, in October 1998, Phoenix's Board of Directors voted to adopt a
reduced dividend scale, effective for dividends payable on or after January
1, 1999. Dividends for individual participating policies are being reduced
60 basis points in most cases, an average reduction of approximately 8%. The
effect was a decrease of approximately $15.7 million in the policyholder
dividends expense in 1998.
REAL ESTATE SALES
On December 15, 1998, Phoenix sold 47 commercial real estate properties with
a carrying value of $269.8 million, and 4 joint venture real estate
partnerships with a carrying value of $10.5 million, for approximately $309
million in cash. This transaction, along with the sale of 18 other
properties and partnerships during the year, which had a carrying value of
$36.7 million, resulted in after-tax gains of approximately $49.6 million.
As of December 31,1998, Phoenix has 7 commercial real estate properties
remaining with a carrying value of $55.7 million and 10 joint venture real
estate partnerships with a carrying value of $36.3 million.
PHOENIX INVESTMENT PARTNERS, LTD.
On December 3, 1998, Phoenix Investment Partners completed the sale of its
49% interest in Canadian investment firm Beutel, Goodman & Company, Ltd. for
$47 million. Phoenix Investment Partners received $37 million in cash and a
$10 million three-year interest bearing note. The transaction resulted in a
before-tax gain of approximately $17.5 million. Phoenix's interest
represents an after-tax realized gain of approximately $6.8 million.
27
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
On September 3, 1997, Phoenix Investment Partners acquired Pasadena Capital
Corporation, the parent company of Roger Engemann & Associates, Inc. for
approximately $214 million. Pasadena Capital managed over $7 billion in
assets at December 31, 1998, primarily individual accounts.
On July 17, 1997, Phoenix Investment Partners acquired a majority interest
in GMG/Seneca Capital Management LLC, renamed Seneca Capital Management, for
approximately $37.5 million. Seneca Capital Management managed $6 billion in
assets at December 31, 1998.
The purchase price for Pasadena Capital and Seneca Capital Management
represented the consideration paid and the direct costs incurred by Phoenix
Investment Partners to purchase Pasadena Capital and a majority interest in
Seneca Capital Management. The excess of the purchase price over the fair
value of the acquired net tangible assets of these companies totaled
approximately $212.8 million. Of this excess purchase price, $110.2 million
was classified as identifiable intangible assets, primarily associated with
investment management contracts, which are being amortized over their
estimated average useful life of 13 years using the straight line method.
The remaining excess purchase price of $142.5 million was classified as
goodwill and is being amortized over 40 years using the straight line
method.
Phoenix owns approximately 60% of the outstanding Phoenix Investment
Partners' common stock. In addition, Phoenix owns 45% of Phoenix Investment
Partners' convertible subordinated debentures.
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 $141.3 million difference, which does not exceed the
estimated present value of future profits of the acquired business, was
recorded as deferred acquisition costs.
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 notes
payable in the Consolidated Balance Sheet.
The notes were issued in accordance with Section 1307 (Contingent Liability
for Borrowings) 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 (Private Resales of Securities
to Institutions) 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
As of December 31, 1998, PM Holdings owned 10% of the outstanding common
stock of Aberdeen Asset Management, a Scottish asset management firm. The
investment is reported on the equity basis and classified as other invested
assets in the Consolidated Balance Sheet.
28
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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 10% of Aberdeen Asset Management's then
outstanding common stock. The note is also classified as other invested
assets 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 Investment Partners and
Aberdeen Asset Management, develops and markets investment products in the
United States and the United Kingdom.
4. INVESTMENTS
Information pertaining to Phoenix's investments, net investment income and
realized and unrealized investment gains and losses follows:
DEBT AND EQUITY SECURITIES
The amortized cost and fair value of investments in debt and equity
securities as of December 31, 1998 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 $ 10,562 $ 643 $ (78) $ 11,127
Foreign government bonds 3,036 (743) 2,293
Corporate securities 1,695,789 98,896 (13,823) 1,780,862
Mortgage-backed securities 172,300 6,201 (12) 178,489
---------- ---------- ----------- ----------
Total 1,881,687 105,740 (14,656) 1,972,771
---------- ---------- ----------- ----------
AVAILABLE-FOR-SALE:
U.S. government and agency bonds 497,089 34,454 (422) 531,121
State and political subdivision bonds 529,977 43,622 (104) 573,495
Foreign government bonds 293,968 28,814 (18,691) 304,091
Corporate securities 1,993,720 110,525 (36,656) 2,067,589
Mortgage-backed securities 3,121,690 110,172 (14,618) 3,217,244
---------- ---------- ----------- ----------
Total 6,436,444 327,587 (70,491) 6,693,540
---------- ---------- ----------- ----------
TOTAL DEBT SECURITIES $8,318,131 $ 433,327 $ (85,147) $8,666,311
---------- ---------- ----------- ----------
EQUITY SECURITIES $ 223,915 $ 102,018 $ (21,388) $ 304,545
========== ========== =========== ==========
</TABLE>
29
<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, 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 $ 158,217 $ 190,669 $ (12,998) $ 335,888
========== ========= ========== ==========
</TABLE>
The amortized cost and fair value of debt securities, by contractual sinking
fund payment and maturity, as of December 31, 1998 are shown below. Actual
maturity may differ from contractual maturity 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 $ 75,505 $ 66,367 $ 58,513 $ 59,953
Due after one year through five years 512,131 535,084 460,182 481,790
Due after five years through ten years 672,533 710,988 948,676 983,590
Due after ten years 449,218 481,843 1,847,383 1,950,963
Mortgage-backed securities 172,300 178,489 3,121,690 3,217,244
----------- ----------- ----------- -----------
Total $ 1,881,687 $ 1,972,771 $ 6,436,444 $ 6,693,540
=========== =========== =========== ===========
</TABLE>
30
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Carrying values for investments in mortgage-backed securities, excluding
U.S. government guaranteed investments, were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1997
(IN THOUSANDS)
<S> <C> <C>
Planned amortization class $ 433,668 $ 554,425
Asset-backed 910,594 594,128
Mezzanine 280,162 328,539
Commercial 641,485 556,155
Sequential pay 982,576 680,397
Pass through 119,065 132,522
Other 21,994 56,393
---------- ----------
Total mortgage-backed securities $3,389,544 $2,902,559
========== ==========
</TABLE>
31
<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,
1998 1997 1998 1997
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C>
PROPERTY TYPE:
Office buildings $221,244 $246,500 $ 38,343 $180,743
Retail 203,927 231,886 36,858 108,907
Apartment buildings 261,894 303,990 21,553 20,560
Industrial buildings 121,789 162,008 1,600 39,810
Other 19,089 18,917 32 238
Valuation allowances (30,600) (35,800) (6,411) (28,501)
-------- -------- -------- --------
Total $797,343 $927,501 $ 91,975 $321,757
======== ======== ======== ========
GEOGRAPHIC REGION:
Northeast $169,368 $222,975 $ 47,709 $ 92,513
Southeast 213,916 257,376 32 85,781
North central 176,683 189,163 11,453 63,751
South central 98,956 79,092 22,649 58,954
West 169,020 214,695 16,543 49,259
Valuation allowances (30,600) (35,800) (6,411) (28,501)
-------- -------- -------- --------
Total $797,343 $927,501 $ 91,975 $321,757
======== ======== ======== ========
</TABLE>
At December 31, 1998, scheduled mortgage loan maturities were as follows:
1999--$99 million; 2000--$81 million; 2001--$87 million; 2002--$29 million;
2003--$107 million; and $394 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 $2.3 million and $8.6 million of its mortgage
loans during 1998 and 1997, respectively, based on terms which differed from
those granted to new borrowers.
32
<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>
1998
Mortgage loans $ 35,800 $ 50,603 $(55,803) $30,600
Real estate 28,501 5,108 (27,198) 6,411
-------- -------- -------- -------
Total $ 64,301 $ 55,711 $(83,001) $37,011
======== ======== ======== =======
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>
NONINCOME-PRODUCING MORTGAGE LOANS AND BONDS
The net carrying values of nonincome-producing mortgage loans were $15.6
million and $7.0 million at December 31, 1998 and 1997, respectively. The
net carrying value of nonincome-producing bonds was $22.3 million at
December 31, 1998. There were no nonincome-producing bonds at December 31,
1997.
INTEREST RATE SWAPS AND INTEREST RATE FLOORS
The notional amounts of Phoenix's interest rate swaps were $416.0 million
and $272.9 million at December 31, 1998 and 1997, respectively. Weighted
average received and paid rates were 6.24% and 5.79%, for 1998. The increase
in net investment income related to interest rate swap contracts was $1.9
million and $.7 million for the years ended December 31, 1998 and 1997,
respectively. The fair value of these interest rate swap agreements as of
December 31, 1998 and 1997 were $11.0 million and $9.4 million,
respectively. 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.
During 1998, Phoenix entered into several interest rate floor contracts. The
notional amount of Phoenix's interest rate floor contracts was $570.0
million at December 31, 1998. The weighted average strike rate was 4.59% for
1998. The excess of the strike rates over the index rates (5- and 10-year
constant maturity treasury yields) was not significant. The fair value of
these interest rate floors at December 31, 1998 was $1.4 million. These
contracts do not require payment of notional principal.
Management of Phoenix considers the likelihood of any material loss on these
guarantees or interest rate swaps or floors to be remote.
33
<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,
1998 1997
(IN THOUSANDS)
<S> <C> <C>
Venture capital equity partnerships $140,591 $ 88,228
Transportation and equipment leases 80,953 78,024
Affordable housing partnerships 10,854
Investment in Aberdeen Asset Management 72,257 70,317
Investment in Beutel, Goodman & Co. Ltd. 31,214
Investment in other affiliates 23,387 5,453
Seed money in separate accounts 26,587 41,297
Other partnership interests 22,697 4,555
-------- --------
Total other invested assets $377,326 $319,088
======== ========
</TABLE>
NET INVESTMENT INCOME
The components of net investment income for the year ended December 31, were
as follows:
<TABLE>
<CAPTION>
1998 1997 1996
(IN THOUSANDS)
<S> <C> <C> <C>
Debt securities $598,892 $509,702 $469,713
Equity securities 6,469 4,277 4,689
Mortgage loans 83,101 85,662 84,318
Policy loans 146,477 122,562 117,742
Real estate 38,338 18,939 21,799
Leveraged leases 2,746 2,692 3,286
Other invested assets 22,364 31,365 18,751
Short-term investments 23,825 18,768 18,688
-------- -------- --------
Sub-total 922,212 793,967 738,986
Less investment expenses 23,328 22,621 27,391
-------- -------- --------
Net investment income $898,884 $771,346 $711,595
======== ======== ========
</TABLE>
Investment income of $8.4 million was not accrued on certain delinquent
mortgage loans and defaulted bonds at December 31, 1998. 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 $40.8 million and $51.3 million at December 31,
1998 and 1997, respectively. Interest income on restructured
34
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
mortgage loans that would have been recorded in accordance with the original
terms of such loans amounted to $4.9 million, $5.3 million and $3.1 million
in 1998, 1997 and 1996, respectively. Actual interest income on these loans
included in net investment income was $4.0 million, $3.8 million and $5.2
million in 1998, 1997 and 1996, respectively.
INVESTMENT GAINS AND LOSSES
Net unrealized gains and (losses) on securities available-for-sale and
carried at fair value for the year ended December 31, were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
(IN THOUSANDS)
<S> <C> <C> <C>
Debt securities $ (7,040) $112,194 $(70,986)
Equity securities (91,880) 74,547 40,803
Deferred policy acquisition costs 6,694 (80,603) 51,528
Deferred income taxes (32,279) 38,064 7,432
-------- -------- --------
Net unrealized investment (losses) gains
on securities available-for-sale $(59,947) $ 68,074 $ 13,913
======== ======== ========
</TABLE>
Realized investment gains and losses for the year ended December 31, were as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
(IN THOUSANDS)
<S> <C> <C> <C>
Debt securities $(4,295) $ 19,315 $(10,476)
Equity securities 11,939 26,290 59,794
Mortgage loans (6,895) 3,805 2,628
Real estate 67,522 44,668 24,711
Other invested assets (4,709) 17,387 765
-------- -------- --------
Net realized investment gains $ 63,562 $111,465 $ 77,422
======== ======== ========
</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>
1998 1997 1996
(IN THOUSANDS)
<S> <C> <C> <C>
Proceeds from disposals $912,696 $821,339 $1,118,594
Gross gains on sales $ 17,442 $ 27,954 $ 12,547
Gross losses on sales $ 33,641 $ 5,309 $ 25,575
</TABLE>
35
<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:
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1997
(IN THOUSANDS)
<S> <C> <C>
Phoenix Investment Partners' gross amounts:
Goodwill $321,793 $321,932
Investment management contracts 169,006 167,788
Noncompete covenant 5,000 5,000
Other 472 1,220
-------- --------
Totals 496,271 495,940
-------- --------
Other gross amounts:
Goodwill 79,217 65,585
Client listings 48,111 45,441
Intangible asset related to pension plan benefits 16,229 18,032
Other 1,690 279
-------- --------
Totals 145,247 129,337
-------- --------
Total gross goodwill and other intangible assets 641,518 625,277
Accumulated amortization - Phoenix Investment Partners (49,615) (27,579)
Accumulated amortization - other (64,874) (56,199)
-------- --------
Total net goodwill and other intangible assets $527,029 $541,499
======== ========
</TABLE>
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, Comprehensive Income and Equity.
36
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
6. NOTES PAYABLE
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1997
(IN THOUSANDS)
<S> <C> <C>
Short-term debt $ 20,463 $ 15,539
Bank borrowings 205,778 263,732
Notes payable 5,438 14,632
Subordinated debentures 41,359
Surplus notes 175,000 175,000
Secured debt 1,214 2,182
-------- --------
Total notes payable $449,252 $471,085
======== ========
</TABLE>
Phoenix has various lines of credit established with major commercial banks.
As of December 31, 1998, Phoenix had outstanding balances totaling $219.7
million. The total unused credit was $190.7 million. Interest rates ranged
from 5.24% to 7.98% in 1998.
Maturities of other indebtedness are as follows: 1999--$20.5 million;
2000--$38.3 million; 2001--$29.2 million; 2002--$318.3 million; 2003--$1.1
million; 2004 and thereafter--$41.9 million.
Interest expense was $29.9 million, $32.5 million and $18.0 million for the
years ended December 31, 1998, 1997 and 1996, respectively.
7. INCOME TAXES
A summary of income taxes (benefits) applicable to income before income
taxes and minority interest for the year ended December 31, was as follows:
<TABLE>
<CAPTION>
1998 1997 1996
(IN THOUSANDS)
<S> <C> <C> <C>
Income taxes
Current $80,322 $54,514 $59,673
Deferred (5,170) 3,663 21,010
------- ------- -------
Total $75,152 $58,177 $80,683
======= ======= =======
</TABLE>
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
37
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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>
1998 1997 1996
% % %
<S> <C> <C> <C> <C> <C> <C>
Income tax expense at statutory rate $73,637 35 $81,818 35 $67,488 35
Dividend received deduction and
tax-exempt interest (3,691) (1) (2,513) (1) (2,107) (1)
Other, net 5,206 2 (8,017) (4) 2,736 1
------- -- ------- -- ------ --
75,152 36 71,288 30 68,117 35
Differential earnings (equity tax) (13,111) (5) 12,566 7
------- -- ------- -- ------ --
Income taxes $75,152 36 $58,177 25 $80,683 42
======= == ======= == ======= ==
</TABLE>
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,
1998 1997
(IN THOUSANDS)
<S> <C> <C>
Deferred policy acquisition costs $ 301,337 $ 303,500
Unearned premium/deferred revenue (148,112) (139,817)
Impairment reserves (23,393) (26,102)
Pension and other postretirement benefits (59,164) (56,643)
Investments 105,395 83,821
Future policyholder benefits (141,130) (140,980)
Other 28,730 45,053
---------- ----------
63,663 68,832
Net unrealized investment gains 51,597 84,134
Minimum pension liability (3,348) (2,526)
---------- ----------
Deferred income tax liability, net $ 111,912 $ 150,440
========== ==========
</TABLE>
Gross deferred income tax assets totaled $375 million and $366 million at
December 31, 1998 and 1997, respectively. Gross deferred income tax
liabilities totaled $487 million and $516 million at December 31, 1998 and
1997, 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, 1998 and 1997 will be
realized.
The Internal Revenue Service is currently examining Phoenix's tax returns
for 1995 through 1997. Management does not believe that there will be a
material adverse effect on the financial statements as a result of pending
tax matters.
38
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
8. PENSION AND OTHER POSTRETIREMENT AND POSTEMPLOYMENT BENEFIT PLANS
PENSION PLANS
Phoenix has a multi-employer, noncontributory, 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 nonqualified supplemental defined benefit plan to provide
benefits in excess of amounts allowed pursuant to the 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 years ended December 31,
were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
(IN THOUSANDS)
<S> <C> <C> <C>
Components of net periodic benefit cost
Service cost $ 11,046 $ 10,278 $ 10,076
Interest cost 22,958 22,650 22,661
Expected return on plan assets (25,083) (22,055) (20,847)
Amortization of net transition asset (2,369) (2,369) (2,468)
Amortization of prior service cost 1,795 1,795 (22)
Amortization of net (gain) loss (1,247) 25 1,867
-------- -------- --------
Net periodic benefit cost $ 7,100 $ 10,324 $ 11,267
======== ======== ========
</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.
39
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The aggregate change in projected benefit obligation, change in plan assets,
and funded status of the plan were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1997
(IN THOUSANDS)
<S> <C> <C>
Change in projected benefit obligation
Projected benefit obligation at beginning of year $ 335,436 $ 301,245
Service cost 11,046 10,278
Interest cost 22,958 22,650
Plan amendments 171
Actuarial loss 1,958 18,644
Benefit payments (17,936) (17,552)
--------- ---------
Benefit obligation at end of year $ 353,462 $ 335,436
========= =========
Change in plan assets
Fair value of plan assets at beginning of year $ 321,555 $ 283,245
Actual return on plan assets 58,225 53,093
Employer contributions 2,975 2,769
Benefit payments (17,936) (17,552)
--------- ---------
Fair value of plan assets at end of year $ 364,819 $ 321,555
========= =========
Funded status of the plan $ 11,357 $ (13,881)
Unrecognized net transition asset (14,217) (16,586)
Unrecognized prior service cost 16,185 17,980
Unrecognized net gain (75,921) (45,986)
--------- ---------
Net amount recognized $ (62,596) $ (58,473)
========= =========
Amounts recognized in the Consolidated Balance
Sheet consist of:
Accrued benefit liability $ (88,391) $ (83,724)
Intangible asset 16,229 18,032
Accumulated other comprehensive income 9,566 7,219
--------- ---------
$ (62,596) $ (58,473)
========= =========
</TABLE>
At December 31, 1998 and 1997, the nonqualified plan was unfunded and had
projected benefit obligations of $57.2 million and $50.4 million,
respectively. The accumulated benefit obligations as of December 31, 1998
and 1997 related to this plan were $48.4 million and $42.8 million,
respectively, and are included in other liabilities.
40
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Phoenix recorded, as a reduction of equity, an additional minimum pension
liability of $6.2 million and $4.7 million, net of income taxes, at December
31, 1998 and 1997, respectively, representing the excess of accumulated
benefit obligations over the fair value of plan assets and accrued pension
liabilities for the nonqualified plan. Phoenix has also recorded an
intangible asset of $16.2 million and $18.0 million as of December 31, 1998
and 1997 related to the nonqualified 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 1998 and 1997. The discount rate assumption for 1998
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% in 1998 and 1997.
The pension plan's assets include corporate and government debt securities,
equity securities, real estate, venture capital partnerships, 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, 1998, 1997 and 1996 were $4.1 million, $3.8 million
and $4.2 million, respectively.
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 components of net periodic postretirement benefit cost for the year
ended December 31, were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
(IN THOUSANDS)
<S> <C> <C> <C>
Components of net periodic benefit cost
Service cost $3,436 $3,136 $2,765
Interest cost 4,572 4,441 4,547
Amortization of net gain (1,232) (1,527) (1,576)
------ ------ ------
Net periodic benefit cost $6,776 $6,050 $5,736
====== ====== ======
</TABLE>
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.
41
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The plan's change in projected benefit obligation, change in plan assets,
and funded status were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1997
(IN THOUSANDS)
<S> <C> <C>
Change in projected postretirement benefit obligation
Projected benefit obligation at beginning of year $ 66,618 $ 63,656
Service cost 3,436 3,136
Interest cost 4,572 4,441
Actuarial (gain) loss 397 (518)
Benefit payments (4,080) (4,098)
-------- --------
Projected benefit obligation at end of year $ 70,943 $ 66,617
-------- --------
Change in plan assets
Employer contributions $ 4,080 $ 4,098
Benefit payments (4,080) (4,098)
-------- --------
Fair value of plan assets at end of year $ $
-------- --------
Funded status of the plan $(70,943) $(66,617)
Unrecognized net gain (26,408) (28,037)
-------- --------
Accrued benefit liability $(97,351) $(94,654)
======== ========
</TABLE>
The discount rate used in determining the accumulated postretirement benefit
obligation was 7.0% at December 31, 1998 and 1997.
42
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
For purposes of measuring the accumulated postretirement benefit obligation
the 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. Based on this assumption the health care costs were
assumed to increase 8.5% in 1998.
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 $4.6 million and the annual service and
interest cost by $.7 million, before taxes. Decreasing the assumed health
care cost trend rates by one percentage point in each year would decrease
the accumulated postretirement benefit obligation by $4.3 million and the
annual service and interest cost by $.6 million, before taxes. Gains and
losses that occur because actual experience differs from the estimates are
amortized over the average future service period of employees.
OTHER POSTEMPLOYMENT BENEFITS
Phoenix recognizes the costs and obligations of severance, disability and
related life insurance and health care benefits to be paid to inactive or
former employees after employment but before retirement. Other
postemployment benefit expense was ($.5) million for 1998, $.4 million for
1997 and $.4 million for 1996.
43
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
9. COMPREHENSIVE INCOME
The components of, and related tax effects for, other comprehensive income
for the years ended December 31, were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
(IN THOUSANDS)
<S> <C> <C> <C>
UNREALIZED (LOSSES) GAINS ON SECURITIES
AVAILABLE-FOR-SALE:
Before-tax amount $(72,255) $151,210 $ 65,374
Tax expense (benefit) (25,288) 52,923 22,881
-------- -------- --------
Totals (46,967) 98,287 42,493
-------- -------- --------
RECLASSIFICATION ADJUSTMENT FOR NET GAINS
REALIZED IN NET INCOME:
Before-tax amount (19,970) (46,481) (43,969)
Tax (benefit) (6,990) (16,268) (15,389)
-------- -------- --------
Totals (12,980) (30,213) (28,580)
-------- -------- --------
NET UNREALIZED (LOSSES) GAINS ON SECURITIES
AVAILABLE-FOR-SALE:
Before-tax amount (92,225) 104,729 21,405
Tax expense (benefit) (32,278) 36,655 7,492
-------- -------- --------
Totals $(59,947) $ 68,074 $ 13,913
-------- -------- --------
MINIMUM PENSION LIABILITY ADJUSTMENT:
Before-tax amount $ (2,347) $ (3,232) $ 1,910
Tax expense (benefit) (821) (1,131) 669
-------- -------- --------
Totals $ (1,526) $ (2,101) $ 1,241
======== ======== ========
</TABLE>
44
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The following table summarizes accumulated other comprehensive income for
the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
(IN THOUSANDS)
<S> <C> <C> <C>
NET UNREALIZED (LOSSES) GAINS ON SECURITIES
AVAILABLE-FOR-SALE:
Balance, beginning of year $160,457 $ 92,383 $ 78,470
Change during period (59,947) 68,074 13,913
-------- -------- --------
Balance, end of year 100,510 160,457 92,383
-------- -------- --------
MINIMUM PENSION LIABILITY ADJUSTMENT:
Balance, beginning of year (4,693) (2,592) (3,833)
Change during period (1,526) (2,101) 1,241
-------- -------- --------
Balance, end of year (6,219) (4,693) (2,592)
-------- -------- --------
ACCUMULATED OTHER COMPREHENSIVE INCOME:
Balance, beginning of year 155,764 89,791 74,637
Change during period (61,473) 65,973 15,154
-------- -------- --------
Balance, end of year $ 94,291 $155,764 $ 89,791
======== ======== ========
</TABLE>
10. SEGMENT INFORMATION
Phoenix is organized by lines of business that include similar product
groupings. Lines of businesses have been grouped into the following
reportable segments: Individual Insurance, Life Reinsurance, Group Life and
Health Insurance and Securities Management. The category "Individual
Insurance" aggregates the Individual Traditional, Universal Life, Variable
Universal Life and Variable Annuity lines of business. The category "All
Other" includes the combined financial results of segments that individually
are below the quantitative thresholds. Those segments include General Lines
Brokerage and several small individual insurance lines. In addition, the
category "All Other" contains unallocated investment income, unallocated
expenses and realized investment gains related to capital in excess of
segment requirements, as well as certain assets such as equity securities
and venture capital. Phoenix calculates taxes at a flat rate of 35% on the
operating income of its insurance line segments and therefore, does not
allocate permanent tax differences to these segments. Also, Phoenix does not
allocate unusual or extraordinary items to its segments.
45
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The following table summarizes significant financial amounts by reportable
segment:
<TABLE>
<CAPTION>
AT AND FOR THE YEAR ENDED
DECEMBER 31, 1998 GROUP LIFE
(IN MILLIONS) INDIVIDUAL LIFE & HEALTH SECURITIES ALL
INSURANCE REINSURANCE INSURANCE MANAGEMENT OTHER TOTALS
---------- ----------- ---------- ---------- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Revenues from external sources $ 1,354 $ 64 $440 $214 $400 $ 2,472
Intersegment revenues 18 41 59
Net investment income 708 19 45 2 75 849
Interest expense 15 1 16
Policyholder dividends 344 344
Increase in DAC (9) (5) (5) (19)
Depreciation and amortization expense 4 1 26 14 45
Other noncash items:
Increase in policy liabilities and accruals 596 38 16 36 686
Minority interest in operating income 14 5 19
Segment operating income (a) $ 50 $ 12 $ 26 $ 23 $ 1 $ 112
======= ==== ==== ==== ==== =======
Deferred policy acquisition costs $ 1,035 $ 27 $ 18 $ 1,080
Total segment assets $16,177 $398 $701 $557 $938 $18,771
======= ==== ==== ==== ==== =======
AT AND FOR THE YEAR ENDED
DECEMBER 31, 1997 GROUP LIFE
(IN MILLIONS) INDIVIDUAL LIFE & HEALTH SECURITIES ALL
INSURANCE REINSURANCE INSURANCE MANAGEMENT OTHER TOTALS
---------- ----------- ---------- ---------- ----- ------
Revenues from external sources $ 1,200 $ 57 $428 $124 $ 298 $ 2,107
Intersegment revenues 16 30 46
Net investment income 586 19 42 2 101 750
Interest expense 4 1 5
Policyholder dividends 328 328
Increase in DAC (32) (5) (13) (50)
Depreciation and amortization expense 3 1 12 36 52
Other noncash items:
Increase in policy liabilities and accruals 508 3 24 50 585
Minority interest in operating income 12 2 14
Segment operating income (a) $ 59 $ 10 $ 33 $ 16 $ (17) $ 101
======= ==== ==== ==== ==== =======
Deferred policy acquisition costs $ 1,014 $ 22 $ 6 $ 1,042
Total segment assets $14,946 $318 $656 $615 $1,101 $17,636
======= ==== ==== ==== ====== =======
</TABLE>
(a) Before income taxes and after policyholder dividends on Individual
Insurance.
46
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AT AND FOR THE YEAR ENDED
DECEMBER 31, 1996 GROUP LIFE
(IN MILLIONS) INDIVIDUAL LIFE & HEALTH SECURITIES ALL
INSURANCE REINSURANCE INSURANCE MANAGEMENT OTHER TOTALS
---------- ----------- ---------- ---------- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Revenues from external sources $ 1,111 $121 $415 $153 $ 140 $ 1,940
Intersegment revenues 14 33 47
Net investment income 562 16 37 2 91 708
Interest expense 3 2 5
Policyholder dividends 297 297
Increase in DAC (39) (2) (20) (61)
Depreciation and amortization expense 3 1 11 11 26
Other noncash items:
Increase in policy liabilities and
accruals 465 8 40 49 562
Minority interest in operating income 17 (3) 14
Segment operating income (a) $ 59 $ 9 $ 12 $ 28 $ (9) $ 99
======= ==== ==== ==== ====== =======
Deferred policy acquisition costs $ 905 $ 18 $ 21 $ 944
Total segment assets $12,302 $304 $597 $366 $ 965 $14,534
======= ==== ==== ==== ====== =======
</TABLE>
(a) Before income taxes and after policyholder dividends on Individual
Insurance.
47
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
SEGMENT RECONCILIATION
The following is a reconciliation of the totals of reportable segment
revenues, operating income and assets to Phoenix's consolidated totals:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1997 1996
(IN MILLIONS)
<S> <C> <C> <C>
REVENUES
Total revenues for reportable segments $ 3,380 $ 2,903 $ 2,695
Realized investment gains 64 111 77
Unallocated net investment income 50 24 4
Elimination of intersegment revenues (59) (47) (47)
------- ------- -------
Total consolidated revenues $ 3,435 $ 2,991 $ 2,729
======= ======= =======
OPERATING INCOME
Total operating income for reportable segments $ 112 $ 101 $ 99
Realized investment gains 64 111 77
Unallocated amounts:
Net investment income 50 22 4
Interest expense (14) (23) (13)
Other unallocated amounts (14) 9 9
Reclassification of minority interest 12 14 17
------- ------- -------
Total consolidated operating income $ 210 $ 234 $ 193
======= ======= =======
ASSETS
Total assets for reportable segments $18,771 $17,636 $14,534
Unallocated amounts:
Investments and accrued investment income
attributable to unallocated capital 725 846 859
Goodwill and other intangible assets 15 21 20
Other unallocated amounts 10 35 41
------- ------- -------
Total consolidated assets $19,521 $18,538 $15,454
======= ======= =======
</TABLE>
11. 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 $106.7 million and $109.0 million,
respectively, at December 31, 1998 and 1997. 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 $173.5 million and
$164.4 million at December 31, 1998 and 1997, respectively.
Rental expenses for operating leases, principally with respect to buildings,
amounted to $14.5 million, $14.9 million and $14.8 million in 1998, 1997,
and 1996, respectively. Future minimum rental payments under noncancelable
operating leases were approximately $45.3 million as of December 31, 1998,
payable as follows: 1999--$14.8 million; 2000--$12.0 million; 2001--$7.9
million; 2002--$5.8 million; 2003--$3.2 million; and $1.6 million
thereafter.
48
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
12. DIRECT BUSINESS WRITTEN AND REINSURANCE
As is customary practice in the insurance industry, Phoenix assumes and
cedes reinsurance as a means of diversifying underwriting risk. For direct
issues, the maximum of individual life insurance retained by Phoenix on any
one life is $8 million for single life and joint first-to-die policies and
to $10 million for joint last-to-die policies, with excess amounts ceded to
reinsurers. Phoenix reinsures 80% of the mortality risk on the inforce block
of the Confederation Life business acquired on December 31, 1997, and 90% of
the mortality risk on certain new issues of term and universal life
products. In addition, Phoenix entered into a separate reinsurance agreement
on October 1, 1998 to reinsure 80% of the mortality risk on a substantial
portion of its otherwise retained individual life insurance business.
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>
1998 1997 1996
(IN THOUSANDS)
<S> <C> <C> <C>
Direct premiums $ 1,719,393 $ 1,592,800 $ 1,473,869
Reinsurance assumed 505,262 329,927 276,630
Reinsurance ceded (371,854) (282,121) (231,677)
------------ ------------ ------------
Net premiums $ 1,852,801 $ 1,640,606 $ 1,518,822
============ ============ ============
Direct policy and contract claims incurred $ 728,062 $ 626,834 $ 575,824
Reinsurance assumed 433,242 410,704 170,058
Reinsurance ceded (407,780) (373,127) (160,646)
------------ ------------ ------------
Net policy and contract claims incurred $ 753,524 $ 664,411 $ 585,236
============ ============ ============
Direct life insurance in force $121,442,041 $ 120,394,664 $108,816,856
Reinsurance assumed 110,632,110 84,806,585 61,109,836
Reinsurance ceded (135,817,986) (74,764,639) (51,525,976)
------------ ------------ ------------
Net insurance in force $ 96,256,165 $130,436,610 $118,400,716
============ ============ ============
</TABLE>
Irrevocable letters of credit aggregating $5.3 million at December 31, 1998
have been arranged with United States commercial banks in favor of Phoenix
to collateralize the ceded reserves.
13. PARTICIPATING LIFE INSURANCE
Participating life insurance in force was 72.3% and 79.6% of the face value
of total individual life insurance in force at December 31, 1998 and 1997,
respectively. The premiums on participating life insurance policies were
75.7%, 83.5% and 84.1% of total individual life insurance premiums in 1998,
1997 and 1996, respectively.
49
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
14. DEFERRED POLICY ACQUISITION COSTS
The following reflects the amount of policy acquisition costs deferred and
amortized for the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of year $1,038,407 $ 926,274 $ 816,128
Acquisition cost deferred 171,618 295,189 153,873
Amortized to expense during the year (140,084) (105,071) (95,255)
Adjustment to net unrealized investment
gains (losses) included in other
comprehensive income 6,694 (77,985) 51,528
---------- ---------- ---------
Balance at end of year $1,076,635 $1,038,407 $ 926,274
========== ========== =========
</TABLE>
15. MINORITY INTEREST
Phoenix's interests in Phoenix Investment Partners and American Phoenix
Corporation, through its wholly-owned subsidiary PM Holdings, are
represented by ownership of approximately 60% and 85%, respectively, of the
outstanding shares of common stock at December 31, 1998. Earnings and equity
attributable to minority shareholders are included in minority interest in
the consolidated financial statements.
16. 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.
50
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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 130 and 800 basis points, depending on
the internal quality rating of the loan. For loans in foreclosure or
default, values were determined assuming principal recovery was the lower of
the loan balance or the estimated value of the underlying property.
POLICY LOANS
Fair values are estimated as the present value of loan interest and policy
loan repayments discounted at the ten-year Treasury rate. Loan repayments
were assumed only to occur as a result of anticipated policy lapses, and it
was assumed that annual policy loan interest payments were made at the
guaranteed loan rate less 17.5 basis points. Discounting was at the ten-year
Treasury rate, except for policy loans with a variable policy loan rate.
Variable policy loans have an interest rate that is reset annually based
upon market rates and therefore, book value is a reasonable approximation of
fair value.
INVESTMENT CONTRACTS
In determining the fair value of guaranteed interest contracts, a discount
rate equal to the appropriate Treasury rate, plus 150 basis points, was
assumed to determine the present value of projected contractual liability
payments through final maturity.
The fair value of deferred annuities and supplementary contracts without
life contingencies with an interest guarantee of one year or less is valued
at the amount of the policy reserve. In determining the fair value of
deferred annuities and supplementary contracts without life contingencies
with interest guarantees greater than one year, a discount rate equal to the
appropriate Treasury rate, plus 150 basis points, was used to determine the
present value of the projected account value of the policy at the end of the
current guarantee period.
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.
51
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
FAIR VALUE SUMMARY
The estimated fair values of the financial instruments as of December 31,
were as follows:
<TABLE>
<CAPTION>
1998 1997
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 132,634 $ 132,634 $ 159,307 $ 159,307
Short-term investments 240,911 240,911 1,078,276 1,078,276
Debt securities 8,575,227 8,666,311 7,213,966 7,316,601
Equity securities 304,545 304,545 335,888 335,888
Mortgage loans 797,343 831,919 927,501 956,041
Policy loans 2,008,260 2,122,389 1,986,728 2,104,704
----------- ----------- ----------- -----------
Total financial assets $12,058,920 $12,298,709 $11,701,666 $11,950,817
=========== =========== =========== ===========
Financial liabilities:
Policy liabilities $ 783,400 $ 783,400 $ 902,200 $ 902,200
Securities sold subject to repurchase
agreements 137,473 137,473
Notes payable 449,252 449,252 471,085 471,085
----------- ----------- ----------- -----------
Total financial liabilities $ 1,232,652 $ 1,232,652 $ 1,510,758 $ 1,510,758
=========== =========== =========== ===========
</TABLE>
17. CONTINGENCIES
FINANCIAL GUARANTEES
As a result of the sale of real estate properties, in December 1998, Phoenix
is no longer 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 principal amount of bonds guaranteed
by Phoenix at December 31, 1997 was $88.7 million.
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. Phoenix estimates the
cost of settlement to be $40 million after tax. A $25 million after tax
liability was recorded in 1995. In addition, $7 million after tax was
expensed in 1996. The after tax costs of $12.5 million for 1997 and $6.7
million for 1998 were directly offset by a release of the liability in those
years. 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.
52
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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, 1998, 1997 and 1996, there
were no material practices not prescribed by the Insurance Department of the
State of New York. Statutory surplus differs from 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 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>
1998 1997 1996
(IN THOUSANDS)
<S> <C> <C> <C>
Statutory net income $108,652 $ 66,599 $ 70,261
Deferred policy acquisition costs, net 18,538 48,821 58,618
Future policy benefits (53,847) (9,145) (16,793)
Pension and postretirement expenses (17,334) (7,955) (23,275)
Investment valuation allowances 94,873 84,975 81,841
Interest maintenance reserve 1,415 17,544 (5,158)
Deferred income taxes (39,983) (36,250) (67,064)
Other, net 12,459 2,118 4,808
-------- -------- --------
Net income, as reported $124,773 $166,707 $103,238
======== ======== ========
</TABLE>
The following reconciles the statutory surplus and asset valuation reserve
(AVR) of Phoenix as reported to regulatory authorities to equity as reported
in these financial statements:
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1997
(IN THOUSANDS)
<S> <C> <C>
Statutory surplus, surplus notes and AVR $1,205,635 $1,152,820
Deferred policy acquisition costs, net 1,259,316 1,227,782
Future policy benefits (465,268) (395,436)
Pension and postretirement expenses (174,273) (169,383)
Investment valuation allowances 2,002 (27,738)
Interest maintenance reserve 35,303 33,794
Deferred income taxes (25,593) (12,051)
Surplus notes (157,500) (157,500)
Other, net 24,062 (11,904)
---------- ----------
Equity, as reported $1,703,684 $1,640,384
========== ==========
</TABLE>
53
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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.
19. PRIOR PERIOD ADJUSTMENT
In 1998, Phoenix revised the accounting for partnerships involved in
leveraged lease arrangements for 1997 and 1996. Opening retained earnings at
December 31, 1995 has been increased by $7.7 million. The Consolidated
Balance Sheet as of December 31, 1997 was revised by increasing the
following balances: other invested assets by $18.9 million, deferred income
taxes by $6.6 million and retained earnings by $12.3 million. The effect on
the Consolidated Statement of Income, Comprehensive Income and Equity was an
increase in net income of $2.1 million and $2.5 million for the years ended
1997 and 1996, respectively.
20. SUBSEQUENT EVENTS
PHOENIX INVESTMENT PARTNERS, LTD.
On March 2, 1999, Phoenix Investment Partners completed its acquisition of
the retail mutual fund and closed-end fund business of the New York City
based Zweig Group. Under the terms of the agreement, Phoenix Investment
Partners paid $135.0 million at closing and will pay up to an additional
$29.0 million over the next three years based on revenue growth of the Zweig
funds. The acquisition increases Phoenix Investment Partners' assets under
management by approximately $4.4 billion.
OCCUPATIONAL ACCIDENT REINSURANCE
Effective March 1, 1995, Phoenix became a participant in an occupational
accident reinsurance pool. In addition, effective October 1, 1996, Phoenix
and American Phoenix Life and Reassurance Company, an indirect wholly owned
subsidiary of Phoenix, became a participant in a reinsurance facility of
occupational accident reinsurance. A significant portion of the risk
associated with the occupational accident reinsurance pool and the
reinsurance facility is further retroceded by Phoenix and American Phoenix
Life to several other unaffiliated insurance entities. Phoenix has
terminated membership in the pool effective March 1, 1999 while American
Phoenix Life and Phoenix terminated participation in the reinsurance
facility effective October 1, 1998.
Management's assessment of the reinsurance arrangements and related
financial exposure to Phoenix and American Phoenix Life is ongoing. Based on
current facts and circumstances, management believes these transactions will
not materially affect the financial condition of Phoenix or American Phoenix
Life.
54
<PAGE>
PHOENIX HOME LIFE
VARIABLE UNIVERSAL LIFE ACCOUNT
FINANCIAL STATEMENTS
As of December 31, 1998, there had been no sales of the product described in
this Prospectus, and therefore, no deposits made to this VUL Account.
Accordingly, no financial statements are available for the VUL Account.
55
<PAGE>
APPENDIX A
PERFORMANCE HISTORY
- --------------------------------------------------------------------------------
THESE RATES OF RETURN ARE NOT AN ESTIMATE OR GUARANTEE OF FUTURE
PERFORMANCE. THEY DO NOT ILLUSTRATE HOW ACTUAL PERFORMANCE WILL AFFECT THE
BENEFITS UNDER A POLICY BECAUSE THEY DO NOT REFLECT COST OF INSURANCE, PREMIUM
TAX CHARGES, PREMIUM SALES CHARGES AND SURRENDER CHARGES, IF APPLICABLE. FOR
THIS INFORMATION SEE APPENDIX C "ILLUSTRATIONS OF DEATH BENEFITS, POLICY VALUES
AND CASH SURRENDER VALUES." Performance information may be expressed as yield
and effective yield of the Phoenix-Goodwin Money Market Subaccount, as yield of
the Phoenix-Goodwin Multi-Sector Fixed Income Subaccount and as total return of
any Subaccount. Current yield for the Phoenix-Goodwin Money Market Subaccount
will be based on the income earned by the Subaccount over a given 7-day period
(less a hypothetical charge reflecting deductions for expenses taken during the
period) and then annualized, i.e., the income earned in the period is assumed to
be earned every seven days over a 52-week period and is stated in terms of an
annual percentage return on the investment. Effective yield is calculated
similarly but reflects the compounding effect of earnings on reinvested
dividends. Yield and effective yield reflect the Mortality and Expense Risk
charge on the VUL Account level.
Yield calculations of the Phoenix-Goodwin Money Market Subaccount used for
illustration purposes are based on the consideration of a hypothetical
participant's account having a balance of exactly one Unit at the beginning of a
7-day period, which period will end on the date of the most recent financial
statements. The yield for the Subaccount during this 7-day period will be the
change in the value of the hypothetical participant's account's original Unit.
The following is an example of this yield calculation for the Phoenix-Goodwin
Money Market Subaccount based on a 7-day period ending December 31, 1998.
Example:
Assumptions:
Value of hypothetical pre-existing account with exactly one
unit at the beginning of the period:...................... 1.821414
Value of the same account (excluding capital changes) at the
end of the 7-day period:.................................. 1.82265
Calculation:
Ending account value ..................................... 1.82265
Less beginning account value ............................. 1.821414
Net change in account value .............................. 0.001236
Base period return:
(adjusted change/beginning account value) ................ 0.000679
Current yield = return x (365/7) = ......................... 3.54%
Effective yield = [(1 + return)(365/7)] - 1 = .............. 3.60%
The current yield and effective yield information will fluctuate, and
publication of yield information may not provide a basis for comparison with
bank deposits, other investments which are insured and/or pay a fixed yield for
a stated period of time, or other investment companies, due to charges which
will be deducted on the VUL Account level.
For the Phoenix-Goodwin Multi-Sector Fixed Income 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.
56
<PAGE>
The following performance tables display historical investment results of
the Subaccounts of the VUL Account. This information may be useful in helping
potential investors in deciding which Subaccounts to choose and in assessing the
competence of the investment advisors. The performance figures shown should be
considered in light of the investment objectives and policies, characteristics
and quality of the Subaccounts and market conditions during the periods of time
quoted. The performance figures should not be considered as estimates or
predictions of future performance. Investment return of the Subaccounts are not
guaranteed and will fluctuate. 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.
<TABLE>
- -----------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN FOR THE PERIOD ENDED DECEMBER 31, 1998(1,4)
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
SUBACCOUNT INCEPTION DATE 1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Phoenix Research Enhanced Index Series.................. 7/15/97 22.51% N/A N/A 19.21%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Aberdeen International Series................... 5/1/90 19.02% 11.21% N/A 9.60%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Aberdeen New Asia Series........................ 9/17/96 -11.10% N/A N/A -20.13%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Duff & Phelps Real Estate Securities Series..... 5/1/95 -26.69% N/A N/A 9.30%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Engemann Capital Growth Series.................. 1/1/83 20.96% 16.50% 18.77% 18.13%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Engemann Nifty Fifty Series..................... 3/2/98 N/A N/A N/A 15.69%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Goodwin Money Market Series..................... 10/10/82 -2.23% 3.04% 4.22% 5.36%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Goodwin Multi-Sector Fixed Income Series........ 1/1/83 -10.83% 4.97% 8.00% 9.00%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Hollister Value Equity Series................... 3/2/98 N/A N/A N/A 3.19%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Oakhurst Balanced Series........................ 5/1/92 10.72% 11.14% N/A 10.97%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Oakhurst Growth and Income Series............... 3/2/98 N/A N/A N/A 12.17%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Oakhurst Strategic Allocation Series............ 9/17/84 12.38% 11.07% 12.74% 12.61%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Schafer Mid-Cap Value Series.................... 3/2/98 N/A N/A N/A -17.48%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Seneca Mid-Cap Growth Series.................... 3/2/98 N/A N/A N/A 13.38%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Seneca Strategic Theme Series................... 1/29/96 34.62% N/A N/A 20.50%
- -----------------------------------------------------------------------------------------------------------------------------------
EAFE([registered trademark] Equity Index Fund........... 8/22/97 13.13% N/A N/A 4.00%
- -----------------------------------------------------------------------------------------------------------------------------------
Federated Fund for U.S. Government Securities II........ 3/28/94 0.16% N/A N/A 4.64%
- -----------------------------------------------------------------------------------------------------------------------------------
Federated High Income Bond Fund II...................... 3/1/94 -4.46% N/A N/A 7.44%
- -----------------------------------------------------------------------------------------------------------------------------------
Mutual Shares Investments Fund --Class 2(2,3)........... 11/2/98 N/A N/A N/A -4.11%
- -----------------------------------------------------------------------------------------------------------------------------------
Templeton Asset Allocation Fund -- Class 2(2,3)......... 11/28/88 -1.29% 9.37% 10.60% 10.52%
- -----------------------------------------------------------------------------------------------------------------------------------
Templeton Developing Markets Fund -- Class 2(2,3)....... 9/15/96 -26.55% N/A N/A -25.00%
- -----------------------------------------------------------------------------------------------------------------------------------
Templeton International Fund -- Class 2(2,3)............ 5/1/92 1.45% 9.51% N/A 12.22%
- -----------------------------------------------------------------------------------------------------------------------------------
Templeton Stock Fund -- Class 2(2,3).................... 11/4/88 -6.04% 8.88% 10.67% 10.38%
- -----------------------------------------------------------------------------------------------------------------------------------
Wanger Foreign Forty.................................... 2/1/99 N/A N/A N/A N/A
- -----------------------------------------------------------------------------------------------------------------------------------
Wanger International Small Cap.......................... 5/1/95 8.23% N/A N/A 18.65%
- -----------------------------------------------------------------------------------------------------------------------------------
Wanger Twenty........................................... 2/1/99 N/A N/A N/A N/A
- -----------------------------------------------------------------------------------------------------------------------------------
Wanger U.S. Small Cap................................... 5/1/95 1.12% N/A N/A 24.13%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The average annual total return is the annual compound return that results
from holding an initial investment of $10,000 for the time period indicated.
Returns are net of 5.5% sales charges, 1.0% issue charge, and investment
management fees and the mortality and expense risk charges.
(2) Because Class 2 shares were not offered until May 1, 1997 (November 10, 1998
for Mutual Shares Investments), performance shown for periods prior to that
date represents the historical results of Class 1 shares. Performance since
that date reflects Class 2's high annual fees and expenses resulting from
its Rule 12b-1 plan. Maximum annual plan expenses are 0.25%.
(3) The manager is limiting fund expenses, which increases total returns.
(4) Performance data quoted represent the investment return of the appropriate
series adjusted for the Variable Insurance Additions Rider charges had the
Subaccount started on the inception date of the appropriate series.
57
<PAGE>
Advertisements, sales literature and other communications may contain
information about any series' or advisor's current investment strategies and
management style. Current strategies and style may change to respond to a
changing market and economic conditions. From time to time, the Series may
discuss specific portfolio holdings or industries in such communications. To
illustrate components of overall performance, the Series may separate their
cumulative and average annual returns into income results and capital gains or
losses; or cite separately, as a return figure, the equity or bond portion of a
Series' portfolio; or compare a Series' equity or bond return figure to
well-known indices of market performance including, but not limited to, the
Standard & Poor's 500 Composite Stock Price Index (the "S&P 500"), Dow Jones
Industrial Average(SM), First Boston High Yield Index and Salomon Brothers
Corporate and Government Bond Indices.
Occasionally, The VUL Account may include in advertisements containing total
return, the ranking of those performance figures relating to such figures for
groups of Subaccounts having similar investment objectives as categorized by
ranking services such as:
Lipper Analytical Services, Inc. Morningstar, Inc.
CDA Investment Technologies, Inc. Weisenberger Financial Services, 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 Personal Investor
The Funds may occasionally 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:
S&P 500 Dow Jones Industrial Average
Europe Australia Far East Index (EAFE) Consumers Price Index
Shearson Lehman Corporate Index 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.
58
<PAGE>
<TABLE>
ANNUAL TOTAL RETURN(1,4)
- -------------------------------------------------------------------------------------------------------------
<CAPTION>
SERIES 1983 1984 1985 1986 1987 1988 1989 1990
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Phoenix Research Enhanced Index Series N/A N/A N/A N/A N/A N/A N/A N/A
- -------------------------------------------------------------------------------------------------------------
Phoenix-Aberdeen International Series N/A N/A N/A N/A N/A N/A N/A N/A
- -------------------------------------------------------------------------------------------------------------
Phoenix-Aberdeen New Asia Series N/A N/A N/A N/A N/A N/A N/A -8.48%
- -------------------------------------------------------------------------------------------------------------
Phoenix-Duff & Phelps Real Estate N/A N/A N/A N/A N/A N/A N/A N/A
Securities Series
- -------------------------------------------------------------------------------------------------------------
Phoenix-Engemann Capital Growth Series 32.22% 10.11% 34.24% 19.86% 6.48% 3.39% 35.39% 3.55%
- -------------------------------------------------------------------------------------------------------------
Phoenix-Engemann Nifty Fifty Series N/A N/A N/A N/A N/A N/A N/A N/A
- -------------------------------------------------------------------------------------------------------------
Phoenix-Goodwin Money Market Series 7.79% 9.67% 7.49% 5.98% 5.97% 6.90% 8.65% 7.67%
- -------------------------------------------------------------------------------------------------------------
Phoenix-Goodwin Multi-Sector Fixed Income 5.47% 10.78% 20.00% 18.69% 0.60% 9.89% 7.70% 4.67%
Series
- -------------------------------------------------------------------------------------------------------------
Phoenix-Hollister Value Equity Series N/A N/A N/A N/A N/A N/A N/A N/A
- -------------------------------------------------------------------------------------------------------------
Phoenix-Oakhurst Balanced Series N/A N/A N/A N/A N/A N/A N/A N/A
- -------------------------------------------------------------------------------------------------------------
Phoenix-Oakhurst Growth and Income Series N/A N/A N/A N/A N/A N/A N/A N/A
- -------------------------------------------------------------------------------------------------------------
Phoenix-Oakhurst Strategic Allocation Series N/A -1.20% 26.69% 15.10% 12.16% 1.83% 19.27% 5.22%
- -------------------------------------------------------------------------------------------------------------
Phoenix-Schafer Mid-Cap Value Series N/A N/A N/A N/A N/A N/A N/A N/A
- -------------------------------------------------------------------------------------------------------------
Phoenix-Seneca Mid-Cap Growth Series N/A N/A N/A N/A N/A N/A N/A N/A
- -------------------------------------------------------------------------------------------------------------
Phoenix-Seneca Strategic Theme Series N/A N/A N/A N/A N/A N/A N/A N/A
- -------------------------------------------------------------------------------------------------------------
EAFE[registered trademark] Equity Index Fund N/A N/A N/A N/A N/A N/A N/A N/A
- -------------------------------------------------------------------------------------------------------------
Federated Fund for U.S. Government N/A N/A N/A N/A N/A N/A N/A N/A
Securities II
- -------------------------------------------------------------------------------------------------------------
Federated High Income Bond Fund II N/A N/A N/A N/A N/A N/A N/A N/A
- -------------------------------------------------------------------------------------------------------------
Mutual Shares Investments Fund -- Class 2(2,3) N/A N/A N/A N/A N/A N/A N/A N/A
- -------------------------------------------------------------------------------------------------------------
Templeton Asset Allocation Fund -- Class 2(2,3) N/A N/A N/A N/A N/A 0.23% 12.46% -8.67%
- -------------------------------------------------------------------------------------------------------------
Templeton Developing Markets Fund -- Class N/A N/A N/A N/A N/A N/A N/A N/A
2(2,3)
- -------------------------------------------------------------------------------------------------------------
Templeton International Fund -- Class 2(2,3) N/A N/A N/A N/A N/A N/A N/A N/A
- -------------------------------------------------------------------------------------------------------------
Templeton Stock Fund -- Class 2(2,3) N/A N/A N/A N/A N/A -0.94% 13.82% -11.72%
- -------------------------------------------------------------------------------------------------------------
Wanger Foreign Forty N/A N/A N/A N/A N/A N/A N/A N/A
- -------------------------------------------------------------------------------------------------------------
Wanger International Small Cap N/A N/A N/A N/A N/A N/A N/A N/A
- -------------------------------------------------------------------------------------------------------------
Wanger Twenty N/A N/A N/A N/A N/A N/A N/A N/A
- -------------------------------------------------------------------------------------------------------------
Wanger US Small Cap N/A N/A N/A N/A N/A N/A N/A N/A
- -------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
ANNUAL TOTAL RETURN(1,4) (continued)
- ---------------------------------------------------------------------------------------------------------------
<CAPTION>
SERIES 1991 1992 1993 1994 1995 1996 1997 1998
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Phoenix Research Enhanced Index Series N/A N/A N/A N/A 17.42% 32.60% 21.45% -21.59%
- ---------------------------------------------------------------------------------------------------------------
Phoenix-Aberdeen International Series N/A N/A N/A N/A N/A N/A 5.61% 31.03%
- ---------------------------------------------------------------------------------------------------------------
Phoenix-Aberdeen New Asia Series 19.07% -13.26% 37.72% -0.44% 9.04% 18.06% 11.49% 27.30%
- ---------------------------------------------------------------------------------------------------------------
Phoenix-Duff & Phelps Real Estate N/A N/A N/A N/A N/A 0.01% -32.73% -4.92%
Securities Series
- ---------------------------------------------------------------------------------------------------------------
Phoenix-Engemann Capital Growth Series 42.00% 9.75% 19.09% 0.96% 30.23% 12.02% 20.48% 29.37%
- ---------------------------------------------------------------------------------------------------------------
Phoenix-Engemann Nifty Fifty Series N/A N/A N/A N/A N/A N/A N/A 23.73%
- ---------------------------------------------------------------------------------------------------------------
Phoenix-Goodwin Money Market Series 5.45% 3.06% 2.35% 3.31% 5.16% 4.50% 4.66% 4.57%
- ---------------------------------------------------------------------------------------------------------------
Phoenix-Goodwin Multi-Sector Fixed Income 18.97% 9.52% 15.33% -5.93% 22.91% 11.86% 10.53% -4.63%
Series
- ---------------------------------------------------------------------------------------------------------------
Phoenix-Hollister Value Equity Series N/A N/A N/A N/A N/A N/A N/A 10.36%
- ---------------------------------------------------------------------------------------------------------------
Phoenix-Oakhurst Balanced Series N/A 9.26% 8.06% -3.32% 22.72% 10.01% 17.35% 18.42%
- ---------------------------------------------------------------------------------------------------------------
Phoenix-Oakhurst Growth and Income Series N/A N/A N/A N/A N/A N/A N/A 19.96%
- ---------------------------------------------------------------------------------------------------------------
Phoenix-Oakhurst Strategic Allocation Series 28.64% 10.10% 10.46% -1.89% 17.61% 8.50% 20.13% 20.19%
- ---------------------------------------------------------------------------------------------------------------
Phoenix-Schafer Mid-Cap Value Series N/A N/A N/A N/A N/A N/A N/A -11.74%
- ---------------------------------------------------------------------------------------------------------------
Phoenix-Seneca Mid-Cap Growth Series N/A N/A N/A N/A N/A N/A N/A 21.26%
- ---------------------------------------------------------------------------------------------------------------
Phoenix-Seneca Strategic Theme Series N/A N/A N/A N/A N/A 9.89% 16.59% 43.97%
- ---------------------------------------------------------------------------------------------------------------
EAFE[registered trademark] Equity Index Fund N/A N/A N/A N/A N/A N/A 0.71% 3.87%
- ---------------------------------------------------------------------------------------------------------------
Federated Fund for U.S. Government N/A N/A N/A 2.23% N/A 3.68% 8.04% 7.12%
Securities II
- ---------------------------------------------------------------------------------------------------------------
Federated High Income Bond Fund II N/A N/A N/A -4.02% N/A 13.74% 13.26% 2.19%
- ---------------------------------------------------------------------------------------------------------------
Mutual Shares Investments Fund -- Class 2(2,3) N/A N/A N/A N/A N/A N/A N/A 2.55%
- ---------------------------------------------------------------------------------------------------------------
Templeton Asset Allocation Fund -- Class 2(2,3) 26.80% 7.29% 25.24% -3.71% 21.65% 18.00% 14.71% 5.57%
- ---------------------------------------------------------------------------------------------------------------
Templeton Developing Markets Fund -- Class N/A N/A N/A N/A N/A 1.13% -29.74% -21.44
2(2,3)
- ---------------------------------------------------------------------------------------------------------------
Templeton International Fund -- Class 2(2,3) N/A -6.62% 46.28% -2.98% 14.91% 23.14% 13.10% 8.50%
- ---------------------------------------------------------------------------------------------------------------
Templeton Stock Fund -- Class 2(2,3) 26.60% 6.34% 33.08% -2.96% 24.34% 21.53% 11.08% 0.49%
- ---------------------------------------------------------------------------------------------------------------
Wanger Foreign Forty N/A N/A N/A N/A N/A N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------------
Wanger International Small Cap N/A N/A N/A N/A 34.23% 31.54% -1.95% 15.75%
- ---------------------------------------------------------------------------------------------------------------
Wanger Twenty N/A N/A N/A N/A N/A N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------------
Wanger US Small Cap N/A N/A N/A N/A 16.24% 46.08% 28.78% 8.15%
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Rates are net of Mortality and Expense Risk Charges and Investment
Management fees for the Subaccounts.
(2) Because Class 2 shares were not offered until May 1, 1997 (November 10, 1998
for Mutual Shares Investments), performance shown for periods prior to that
date represents the historical results of Class 1 shares. Performance since
that date reflects Class 2's high annual fees and expenses resulting from
its Rule 12b-1 plan. Maximum annual plan expenses are 0.25%.
(3) The manager is limiting fund expenses, which increases total returns.
(4) Performance data quoted represent the investment return of the appropriate
series adjusted for the Variable Insurance Additions Rider charges had the
Subaccount started on the inception date of the appropriate series.
THESE RATES OF RETURN ARE NOT AN ESTIMATE OR GUARANTEE OF FUTURE PERFORMANCE.
59
<PAGE>
APPENDIX B
ILLUSTRATIONS OF DEATH BENEFITS AND RIDER CASH VALUES
- --------------------------------------------------------------------------------
The tables on the following pages illustrate how a VIA's death benefits and
Rider Cash Value could vary over time assuming constant hypothetical gross
(after tax) annual investment returns of 0%, 6% and 12%. The VIA 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 VIA benefits also will differ, depending
on your asset 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. Cash values may be lower for
smokers or former smokers or for risk classes involving higher mortality risk.
The death benefit and Rider Cash Value amounts reflect the following current
charges:
1. Monthly deduction charge, which can vary in amount from month to month. 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.")
2. Mortality and expense risk charge, which is a daily charge equivalent to
.50% 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 .70%
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 .30%. All other Fund expenses, except capital items such as
brokerage commissions, are paid by the Advisor 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, 1998,
average total operating expenses for the Series would have been approximately
1.43% 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 -1.49%, 4.48% and 10.45%, 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 Rider Cash Value, that Rider Cash Value may
be low in comparison to the amount of the premiums accumulated with interest.
Thus, the cost of owning a Rider for a relatively short time may be high.
On request, we will furnish the Rider Owner 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.
60
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY PAGE 1 OF 2
STATUTORY HOME OFFICE: EAST GREENBUSH, NEW YORK
MALE 40 NEVERSMOKE
THE VARIABLE INSURANCE ADDITIONS RIDER
ASSUMING CURRENT CHARGES
<TABLE>
<CAPTION>
DIVIDENDS
APPLIED TO RIDER RIDER RIDER
DIVIDENDS VIAS CASH VIA DEATH CASH VIA DEATH CASH VIA DEATH
APPLIED TO ACCUM. VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
YEAR VIAS @5.0% @0% 0% @ 6% @6% @ 12% @12%
------- --------- ---------- ---------- ---------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,614 1,695 1,583 8,095 1,679 8,095 1,775 8,095
2 365 2,163 1,911 8,095 2,128 8,095 2,356 8,622
3 473 2,767 2,340 8,285 2,708 9,586 3,114 11,022
4 580 3,515 2,867 9,805 3,423 11,708 4,065 13,904
5 690 4,415 3,491 11,557 4,282 14,174 5,233 17,323
6 803 5,479 4,215 13,530 5,293 16,992 6,643 21,323
7 920 6,719 5,039 15,621 6,467 20,048 8,321 25,796
8 1,073 8,182 5,997 18,052 7,847 23,619 10,335 31,110
9 1,228 9,880 7,089 20,629 9,443 27,480 12,720 37,016
10 1,383 11,826 8,311 23,437 11,264 31,765 15,512 43,745
11 1,545 14,040 9,667 26,393 13,326 36,380 18,759 51,214
12 1,715 16,542 11,163 29,583 15,645 41,459 22,514 59,662
13 1,983 19,452 12,890 33,129 18,332 47,115 26,932 69,214
14 2,250 22,787 14,843 36,959 21,401 53,289 32,076 79,870
15 2,520 26,572 17,018 41,015 24,867 59,931 38,020 91,628
16 2,813 30,854 19,433 45,474 28,768 67,318 44,862 104,979
17 3,110 35,663 22,085 50,133 33,123 75,190 52,694 119,617
18 3,310 40,921 24,872 54,968 37,846 83,640 61,501 135,917
19 3,503 46,645 27,784 59,737 42,942 92,326 71,366 153,437
20 3,708 52,871 30,829 64,433 48,435 101,229 82,400 172,216
@ 65 54,126 92,626 44,938 81,788 78,892 143,585 155,329 282,699
</TABLE>
VIA death benefit and Rider Cash Values are based on hypothetical gross interest
rates shown, assume current and guaranteed charges and no surrenders of VIA or
withdrawals, and are calculated at the end of the Rider Year. Dividends applied
to VIAs shown are allocated at the beginning of the Rider Year. Values shown
reflect an effective annual asset charge of 1.50% (includes mortality and
expense risk charge of 0.5% and average fund operating expenses of 1.00%
applicable to the investment Subaccounts of the VUL Separate Account).
Hypothetical gross interest rates are presented for illustrative purposes only
to illustrate dividends 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.
61
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY PAGE 2 OF 2
STATUTORY HOME OFFICE: EAST GREENBUSH, NEW YORK
MALE 40 NEVERSMOKE
THE VARIABLE INSURANCE ADDITIONS RIDER
ASSUMING GUARANTEED CHARGES
<TABLE>
<CAPTION>
DIVIDENDS
APPLIED TO RIDER RIDER RIDER
DIVIDENDS VIAS CASH VIA DEATH CASH VIA DEATH CASH VIA DEATH
APPLIED TO ACCUM. VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
YEAR VIAS @ 5.0% @ 0% @ 0% @ 6% @ 6% @ 12% @ 12%
------- --------- ---------- ---------- ---------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,614 1,695 1,575 8,095 1,671 8,095 1,767 8,095
2 365 2,163 1,896 8,095 2,112 8,095 2,339 8,562
3 473 2,767 2,318 8,206 2,683 9,497 3,085 10,922
4 580 3,515 2,835 9,696 3,385 11,578 4,020 13,749
5 690 4,415 3,448 11,413 4,227 13,993 5,165 17,098
6 803 5,479 4,157 13,344 5,217 16,748 6,544 21,006
7 920 6,719 4,963 15,387 6,364 19,728 8,182 25,363
8 1,073 8,182 5,900 17,759 7,709 23,206 10,142 30,528
9 1,228 9,880 6,966 20,270 9,263 26,956 12,458 36,252
10 1,383 11,826 8,156 23,001 11,031 31,108 15,161 42,754
11 1,545 14,040 9,475 25,869 13,028 35,567 18,295 49,946
12 1,715 16,542 10,926 28,956 15,268 40,460 21,906 58,052
13 1,983 19,452 12,600 32,383 17,858 45,895 26,143 67,188
14 2,250 22,787 14,489 36,078 20,808 51,812 31,060 77,341
15 2,520 26,572 16,588 39,978 24,130 58,153 36,720 88,495
16 2,813 30,854 18,912 44,255 27,855 65,182 43,207 101,106
17 3,110 35,663 21,457 48,708 31,999 72,638 50,599 114,859
18 3,310 40,921 24,119 53,303 36,469 80,596 58,861 130,082
19 3,503 46,645 26,885 57,803 41,264 88,717 68,058 146,326
20 3,708 52,871 29,762 62,203 46,401 96,979 78,279 163,604
@ 65 54,126 92,626 42,681 77,680 74,042 134,757 143,890 261,880
</TABLE>
VIA death benefit and Rider Cash Values are based on hypothetical gross interest
rates shown, assume current and guaranteed charges and no surrenders of VIA or
withdrawals, and are calculated at the end of the Rider Year. Dividends applied
to VIAs shown are allocated at the beginning of the Rider Year. Values shown
reflect an effective annual asset charge of 1.50% (includes mortality and
expense risk charge of 0.5% and average fund operating expenses of 1.00%
applicable to the investment Subaccounts of the VUL Separate Account).
Hypothetical gross interest rates are presented for illustrative purposes only
to illustrate dividends 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.
62
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY PAGE 1 OF 2
STATUTORY HOME OFFICE: EAST GREENBUSH, NEW YORK
FEMALE 40 NEVERSMOKE
THE VARIABLE INSURANCE ADDITIONS RIDER
ASSUMING CURRENT CHARGES
<TABLE>
<CAPTION>
DIVIDENDS
APPLIED TO RIDER RIDER RIDER
DIVIDENDS VIAS CASH VIA DEATH CASH VIA DEATH CASH VIA DEATH
APPLIED TO ACCUM. VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
YEAR VIAS @ 5.0% @ 0% @ 0% @ 6% @ 6% @ 12% @ 12%
------- --------- ---------- ---------- ---------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,634 1,716 1,604 7,202 1,701 7,214 1,799 7,626
2 450 2,274 2,016 8,287 2,240 9,205 2,475 10,172
3 548 2,963 2,517 9,992 2,902 11,521 3,326 13,206
4 648 3,792 3,106 11,958 3,695 14,226 4,373 16,837
5 748 4,767 3,782 14,106 4,624 17,249 5,635 21,018
6 845 5,892 4,540 16,389 5,692 20,548 7,129 25,735
7 950 7,184 5,386 18,799 6,912 24,122 8,887 31,017
8 1,063 8,660 6,327 21,387 8,298 28,047 10,945 36,995
9 1,178 10,330 7,363 24,150 9,859 32,337 13,334 43,736
10 1,295 12,206 8,492 27,005 11,604 36,900 16,089 51,163
11 1,418 14,305 9,720 29,937 13,545 41,720 19,251 59,295
12 1,550 16,648 11,052 32,935 15,701 46,790 22,872 68,160
13 1,723 19,289 12,526 36,202 18,121 52,370 27,041 78,148
14 1,900 22,249 14,143 39,744 20,818 58,498 31,812 89,392
15 2,078 25,543 15,901 43,252 23,804 64,747 37,248 101,315
16 2,268 29,202 17,808 47,014 27,102 71,551 43,425 114,643
17 2,468 33,253 19,871 50,870 30,736 78,684 50,428 129,095
18 2,628 37,675 22,047 54,897 34,675 86,340 58,291 145,145
19 2,780 42,478 24,326 58,870 38,924 94,196 67,093 162,366
20 2,945 47,694 26,720 62,792 43,509 102,246 76,940 180,810
@ 65 45,842 80,976 37,906 76,949 69,128 140,331 142,491 289,257
</TABLE>
VIA death benefit and Rider Cash Values are based on hypothetical gross interest
rates shown, assume current and guaranteed charges and no surrenders of VIA or
withdrawals, and are calculated at the end of the Rider Year. Dividends applied
to VIAs shown are allocated at the beginning of the Rider Year. Values shown
reflect an effective annual asset charge of 1.50% (includes mortality and
expense risk charge of 0.5% and average fund operating expenses of 1.00%
applicable to the investment Subaccounts of the VUL Separate Account).
Hypothetical gross interest rates are presented for illustrative purposes only
to illustrate dividends 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.
63
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY PAGE 2 OF 2
STATUTORY HOME OFFICE: EAST GREENBUSH, NEW YORK
FEMALE 40 NEVERSMOKE
THE VARIABLE INSURANCE ADDITIONS RIDER
ASSUMING GUARANTEED CHARGES
<TABLE>
<CAPTION>
DIVIDENDS
APPLIED TO RIDER RIDER RIDER
DIVIDENDS VIAS CASH VIA DEATH CASH VIA DEATH CASH VIA DEATH
APPLIED TO ACCUM. VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
YEAR VIAS @ 5.0% @ 0% @ 0% @ 6% @ 6% @ 12% @ 12%
------- --------- ---------- ---------- ---------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,634 1,716 1,598 7,202 1,695 7,213 1,792 7,600
2 450 2,274 2,003 8,234 2,226 9,148 2,459 10,108
3 548 2,953 2,495 9,906 2,877 11,422 3,298 13,092
4 648 3,792 3,073 11,832 3,655 14,073 4,325 16,653
5 748 4,767 3,735 13,933 4,565 17,029 5,561 20,742
6 845 5,892 4,477 16,162 5,609 20,248 7,020 25,342
7 950 7,184 5,304 18,510 6,798 23,726 8,733 30,478
8 1,063 8,660 6,221 21,027 8,147 27,536 10,732 36,273
9 1,178 10,330 7,228 23,708 9,661 31,689 13,045 42,787
10 1,295 12,206 8,324 26,472 11,350 36,093 15,704 49,938
11 1,418 14,305 9,514 29,303 13,224 40,729 18,746 57,739
12 1,550 16,648 10,802 32,190 15,298 45,589 22,218 66,210
13 1,723 19,289 12,225 35,331 17,621 50,924 26,201 75,720
14 1,900 22,249 13,782 38,729 20,201 56,766 30,742 86,386
15 2,078 25,543 15,472 42,083 23,051 62,698 35,896 97,639
16 2,268 29,202 17,300 45,672 26,187 69,135 41,730 110,167
17 2,468 33,253 19,274 49,341 29,632 75,859 48,316 123,689
18 2,628 37,675 21,349 53,160 33,352 83,047 55,678 138,639
19 2,780 42,478 23,517 56,912 37,350 90,388 63,882 154,595
20 2,945 47,694 25,788 60,603 41,649 97,876 73,020 171,597
@ 65 45,842 80,976 36,162 73,409 65,142 132,239 132,532 269,040
</TABLE>
VIA death benefit and Rider Cash Values are based on hypothetical gross interest
rates shown, assume current and guaranteed charges and no surrenders of VIA or
withdrawals, and are calculated at the end of the Rider Year. Dividends applied
to VIAs shown are allocated at the beginning of the Rider Year. Values shown
reflect an effective annual asset charge of 1.50% (includes mortality and
expense risk charge of 0.5% and average fund operating expenses of 1.00%
applicable to the investment Subaccounts of the VUL Separate Account).
Hypothetical gross interest rates are presented for illustrative purposes only
to illustrate dividends 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.
64
