PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
HOME OFFICE: PHOENIX VARIABLE PRODUCTS
One American Row MAIL OPERATIONS (VPMO):
Hartford, Connecticut P.O. Box 8027
Boston, MA 02266-8027
Tel. 800/243-4840
VARIABLE ACCUMULATION DEFERRED ANNUITY CONTRACTS
PROSPECTUS
May 1, 1998
As Supplemented October 5, 1998
FOR TAX-QUALIFIED AND NONTAX-QUALIFIED ANNUITY PLANS
This Prospectus describes Templeton Investment Plus, individual deferred
variable accumulation annuity contracts ("Contracts") issued by Phoenix Home
Life Mutual Insurance Company ("Phoenix"). The Contracts provide for both an
accumulation period and an annuity period. Purchase payments under the Contracts
are flexible. Generally, a Minimum Initial Purchase Payment of $1,000 is
required and each subsequent purchase payment must be at least $25. If the bank
draft investment program is elected, the Minimum Initial Purchase Payment
required is $25. For Individual Retirement Accounts (IRAs) including SEP IRAs
and SIMPLE IRAs, the Minimum Initial Purchase Payment required is $25. For
Contracts issued under tax-qualified or employer-sponsored plans other than
IRAs, a minimum annual payment of $1,000 must be made. Generally, a Contract may
not be purchased with respect to a proposed Annuitant who is 80 years of age or
older.
Purchase payments are allocated to one or more of the available Subaccounts
of the Phoenix Home Life Variable Accumulation Account (the "Account") and/or to
the Guaranteed Interest Account ("GIA") as specified by the Contract Owner in
the application for the Contract. Each available Subaccount of the Account
invests exclusively in Class 1 shares of a series of the Templeton Variable
Products Series Fund except the Money Market Subaccount, which invests in The
Phoenix Edge Series Fund and has a single class of shares (collectively, the
"Funds"). The Funds are mutual funds whose Series presently include the Phoenix
Money Market Fund, Templeton Bond Fund ("Bond Series"), Templeton Stock Fund
("Stock Series"), Templeton Asset Allocation Fund ("Allocation Series"),
Templeton International Fund ("International Series") and Templeton Developing
Markets Fund ("Developing Markets Series").
You may surrender a Contract for any reason within 10 days after its receipt
and receive in cash the adjusted value of the initial purchase payment. You may
receive more or less than the initial payment depending on investment experience
within the Subaccount during the 10-day period, unless Contract was issued with
a Temporary Money Market Allocation Amendment, in which case your initial
purchase payment is refunded. If the initial purchase payment, or any portion
thereof, was allocated to the GIA, that payment (or portion) and any earned
interest is refunded. (See "Free Look Period.")
This Prospectus provides information a prospective investor should know
before investing and should be kept for future reference. It is accompanied by
current prospectuses for the Funds. No offer is being made of a Contract funded
by any Series of the Funds which is not an investment option of the Contract and
for which a current prospectus has not been delivered.
THE CONTRACTS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY FINANCIAL INSTITUTION OR CREDIT UNION AND ARE NOT FEDERALLY INSURED BY
THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER AGENCY. INVESTMENTS IN
THE CONTRACTS ARE SUBJECT TO INVESTMENT RISK, INCLUDING THE FLUCTUATION OF
CONTRACT VALUE AND THE POSSIBLE LOSS OF PRINCIPAL INVESTED.
Additional information about the Contracts has been filed with the
Securities and Exchange Commission ("SEC") in a Statement of Additional
Information ("SAI"), dated May 1, 1998, which is incorporated herein by
reference. The SAI, the table of contents of which is set forth in this
Prospectus, is available without charge upon request by writing or telephoning
Phoenix at the address or telephone number set forth above.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SEC NOR HAS THE
SEC PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
1
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TABLE OF CONTENTS
Heading Page
- -----------------------------------------------------------
SUMMARY OF EXPENSES.................................... 3
FINANCIAL HIGHLIGHTS................................... 5
SPECIAL TERMS.......................................... 6
SUMMARY ............................................... 6
PERFORMANCE HISTORY.................................... 8
THE VARIABLE ACCUMULATION ANNUITY...................... 9
PHOENIX AND THE ACCOUNT................................ 9
THE FUNDS.............................................. 10
PURCHASE OF CONTRACTS.................................. 11
DEDUCTIONS AND CHARGES................................. 11
Premium Tax......................................... 11
Sales Charges....................................... 11
Charges for Mortality and Expense Risks............. 11
Charges for Administrative Services................. 12
Other Charges....................................... 12
THE ACCUMULATION PERIOD................................ 12
Accumulation Units.................................. 12
Accumulation Unit Values............................ 13
Transfers........................................... 13
Surrender of Contract; Partial Withdrawals.......... 14
Lapse of Contract................................. 14
Payment Upon Death Before Maturity Date............. 14
THE ANNUITY PERIOD..................................... 14
Variable Accumulation Annuity Contracts............. 14
Annuity Options..................................... 15
Option A-Life Annuity With Specified Period
Certain........................................ 15
Option B--Non-Refund Life Annuity................. 15
Option D--Joint and Survivor Life Annuity......... 15
Option E--Installment Refund Life Annuity......... 15
Option F--Joint and Survivor Life Annuity
With Specified Period Certain.................. 15
Option G--Payments for Specified Period........... 16
Option H--Payments of Specified Amount............ 16
Option I--Variable Payment Life Annuity With
Ten-Year Period Certain........................ 16
Option J--Joint Survivor Variable Payment Life
Annuity With Ten-Year Period Certain........... 16
Option K--Variable Payment Annuity for a
Specified Period............................... 16
Other Options and Rates.......................... 16
Other Conditions................................. 16
Payment Upon Death After Maturity Date ................ 16
VARIABLE ACCOUNT VALUATION PROCEDURES.................. 16
MISCELLANEOUS PROVISIONS............................... 17
Assignment.......................................... 17
Deferment of Payment................................ 17
Free Look Period.................................... 17
Amendments to Contracts............................. 17
Substitution of Fund Shares......................... 17
Ownership of the Contract........................... 17
FEDERAL INCOME TAXES................................... 18
Introduction........................................ 18
Tax Status.......................................... 18
Taxation of Annuities in General.................... 18
Surrenders or Withdrawals Prior to the
Contract Maturity Date......................... 18
Surrenders or Withdrawals on or after the
Contract Maturity Date......................... 18
Penalty Tax on Certain Surrenders and
Withdrawals.................................... 19
Additional Considerations.......................... 19
Diversification Standards.......................... 20
Qualified Plans.................................... 20
Tax-Sheltered Annuities.......................... 21
Keogh Plans...................................... 21
Individual Retirement Accounts................... 21
Corporate Pension and Profit-Sharing Plans....... 21
Deferred Compensation Plans with Respect to
Service for State and Local Governments and
Tax-Exempt Organizations .................. 22
Penalty Tax on Certain Surrenders and
Withdrawals from Qualified Contracts ......... 22
Seek Tax Advice.................................. 22
SALES OF VARIABLE ACCUMULATION CONTRACTS............... 22
STATE REGULATION....................................... 23
REPORTS ............................................... 23
VOTING RIGHTS.......................................... 23
TEXAS OPTIONAL RETIREMENT PROGRAM...................... 23
LITIGATION............................................. 23
LEGAL MATTERS.......................................... 23
STATEMENT OF ADDITIONAL INFORMATION.................... 23
APPENDIX A............................................. 24
APPENDIX B............................................. 25
2
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<TABLE>
<CAPTION>
SUMMARY OF EXPENSES
CONTRACT OWNER TRANSACTION EXPENSES ALL SUBACCOUNTS
---------------
<S> <C>
Sales Charge Imposed on Purchases.................................................... None
Deferred Sales Charge (as a percentage of amount surrendered)(1):
Age of Payment in Complete Years 0-1............................................. 6%
Age of Payment in Complete Years 1-2............................................. 5%
Age of Payment in Complete Years 2-3............................................. 4%
Age of Payment in Complete Years 3-4............................................. 3%
Age of Payment in Complete Years 4-5............................................. 2%
Age of Payment in Complete Years 5-6............................................. 1%
Age of Payment in Complete Years 6 and thereafter................................ None
Exchange Fee
Current Fee...................................................................... None
Maximum Allowable Charge Per Exchange............................................ $10
CONTRACT FEES
Current Annual Administrative.................................................... $35
Maximum Annual Administrative.................................................... $35
SEPARATE ACCOUNT EXPENSES (as a percentage of average account value)
Mortality and Expense Risk Fees.................................................. 1.25%
Account Fees and Expenses Daily Administrative Fee............................... 0.125%
Total Separate Account Annual Expenses........................................... 1.375%
</TABLE>
SERIES ANNUAL EXPENSES (as a percentage of each Series' average net assets)
This table shows past expenses of each Series during 1997,except as indicated.
Future expenses may be greater or lower.
<TABLE>
<CAPTION>
ASSET DEVELOPING
MONEY BOND STOCK ALLOCATION INTERNATIONAL MARKETS
MARKET CLASS 1 CLASS 1(2) CLASS 1(2) CLASS 1(2) CLASS 1
------ ------- --------- ----------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Investment Management Fees..................... .40% .50% .69% .60% .69% 1.25%
Other Expenses(3)............................... .15% .18% .19% .18% .19% .33%
Total Fund Annual Expenses..................... .55% .68% .88% .78% .88% 1.58%
EXAMPLE
If you surrender your Contract at the end of the applicable time period: You
would pay the following expenses on a $1,000 investment, assuming 5% annual
return on assets:
1 year............................... $ 77 $ 68 $ 71 $ 70 $ 71 $ 77
3 years............................... 105 99 105 102 105 125
5 years............................... 133 129 139 134 139 173
10 years............................... 241 254 274 264 274 342
If you do not surrender your Contract: You would pay the following expenses
on a $1,000 investment, assuming 5% annual return on assets:
1 year................................ $ 21 $ 23 $ 25 $ 24 $ 25 $ 32
3 years............................... 66 70 76 73 76 96
5 years............................... 112 119 129 124 129 164
10 years............................... 241 254 274 264 274 342
</TABLE>
(1) A sales charge is taken from the proceeds when a Contract is surrendered or
when an amount is withdrawn, if assets have not been held under the
Contract for a certain period of time. An amount up to 10% of the Contract
Value may be withdrawn each year without a sales charge. (See "Deductions
and Charges --Sales Charges.")
(2) Management fees and total fund operating expenses have been restated to
reflect the new management fee schedule which was approved by shareholders
and which took effect on May 1, 1997. See the Fund prospectus for details.
Actual fees and operating expenses before May 1, 1997 were lower.
(3) Each Series pays a portion of all of its total operating expenses other
than the management fee. "Other Expenses" are based upon the actual
operating expenses incurred by the Fund for the fiscal year ended December
31, 1997.
3
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SUMMARY OF EXPENSES
The purpose of the tables set forth above is to assist the Contract Owner in
understanding the various costs and expenses that a Contract Owner will bear
directly or indirectly. The tables reflect expenses of the Account as well as
the Funds. (See "Deductions and Charges" in this Prospectus and "Management of
the Trust" in the Fund Prospectus.)
Any premium or other taxes levied by any governmental entity with respect to
the Contracts will be charged against the Contract Values based on a percentage
of premiums paid. Premium taxes currently imposed by certain states on the
Contracts range from 0% to 3.5% of premiums paid. (See "Deductions and
Charges--Premium Tax.")
The Example should not be considered a representation of past or future
expenses and actual expenses may be greater or less than those shown. The $35
annual administrative charge is reflected in the example as $1.75 since the
average Contract account size is greater than $1,000 and the expense effect is
reduced accordingly. (See "Deductions and Charges.")
4
<PAGE>
PHOENIX HOME LIFE VARIABLE ACCUMULATION ACCOUNT
FINANCIAL HIGHLIGHTS
(SELECTED DATA FOR A UNIT OUTSTANDING THROUGHOUT THE INDICATED PERIOD)
Following are the financial highlights for the period indicated.
<TABLE>
<CAPTION>
TEMPLETON STOCK SUBACCOUNT
--------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, PERIOD FROM
----------------------- 11/4/88*
1997 1996 1995 1994 1993 1992 1991 1990 1989 TO 12/31/88
---- ---- ---- ---- ---- ---- ---- ---- ---- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Unit value, beginning
of period........... $2.484883 $2.057549 $1.665152 $1.726593 $1.305609 $1.235446 $ .981990 $1.119352 $ .989563 $1.000000
Unit value, end of
period.............. 2.742374 $2.484883 $2.057549 $1.665152 $1.726593 $1.305609 $1.235446 $ .981990 $1.119352 $ .989563
======== ========= ========= ========= ========= ========= ========= ========= ========= =========
Number of
accumulation units
outstanding at end
of period (000)..... 116,902 132,392 142,234 144,872 137,108 118,456 94,307 74,885 44,084 2,812
TEMPLETON ASSET ALLOCATION SUBACCOUNT
--------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, PERIOD FROM
----------------------- 11/28/88*
1997 1996 1995 1994 1993 1992 1991 1990 1989 TO 12/31/88
---- ---- ---- ---- ---- ---- ---- ---- ---- -----------
Unit value, beginning
of period........... $2.304966 $1.965734 $1.625952 $1.699180 $1.365257 $1.280431 $1.016125 $1.119543 $1.001691 $1.000000
Unit value, end of
period.............. 2.626697 $2.304966 $1.965734 $1.625952 $1.699180 $1.365257 $1.280431 $1.016125 $1.119543 $1.001691
======== ========= ========= ========= ========= ========= ========= ========= ========= =========
Number of
accumulation units
outstanding at end
of period (000)..... 58,816 65,843 72,985 74,901 66,903 46,950 27,918 21,974 11,455 130
MONEY MARKET SUBACCOUNT**
--------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, PERIOD FROM
----------------------- 12/2/88*
1997 1996 1995 1994 1993 1992 1991 1990 1989 TO 12/31/88
---- ---- ---- ---- ---- ---- ---- ---- ---- -----------
Unit value, beginning
of period........... $1.333545 $1.287771 $1.238474 $1.213373 $1.201078 $1.181114 $1.134278 $1.069449 $1.003591 $1.000000
Unit value, end of
period.............. 1.381824 $1.333545 $1.287771 $1.238474 $1.213373 $1.201078 $1.181114 $1.134278 $1.069449 $1.003591
======== ========= ========= ========= ========= ========= ========= ========= ========= =========
Number of
accumulation units
outstanding at end
of period (000)..... 11,464 10,597 16,077 26,566 13,892 17,734 18,533 15,540 5,324 423
TEMPLETON BOND SUBACCOUNT
--------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, PERIOD FROM
----------------------- 1/4/89*
1997 1996 1995 1994 1993 1992 1991 1990 TO 12/31/89
---- ---- ---- ---- ---- ---- ---- ---- -----------
Unit value, beginning
of period........... $1.672413 $1.549167 $1.366504 $1.456861 $1.324996 $ 1.272743 $1.113263 $1.061263 $1.000000
Unit value, end of
period.............. 1.690923 $1.672413 $1.549167 $1.366504 $1.456861 $ 1.324996 $1.272743 $1.113263 $1.061263
======== ========= ========= ========= ========= ========== ========= ========= =========
Number of
accumulation units
outstanding at end
of period (000)..... 9,941 11,875 12,633 13,111 13,578 8,937 5,611 2,889 1,455
TEMPLETON INTERNATIONAL SUBACCOUNT
--------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, PERIOD FROM
----------------------- 5/1/92*
1997 1996 1995 1994 1993 TO 12/31/92
---- ---- ---- ---- ---- -----------
Unit value, beginning of period.................................. $1.821499 $1.488540 $1.303520 $1.351997 $ .930016 $1.000000
Unit value, end of period........................................ 2.047517 $1.821499 $1.488540 $1.303520 $1.351997 $ .930016
======== ========= ========= ========= ========= =========
Number of accumulation units outstanding at end of period (000)... 58,470 62,848 59,587 58,214 32,362 7,562
TEMPLETON DEVELOPING MARKETS SUBACCOUNT
---------------------------------------
YEAR ENDED PERIOD FROM
DECEMBER 9/15/96*
31, 1997 TO 12/31/96
-------- -----------
Unit value, end of period............................................................................. 0.704720 $1.009604
======== =========
Number of accumulation units outstanding at end of period (000)....................................... 4,110 1,040
*Date of inception
**Formerly known as the "Templeton Money Market Subaccount." On October 6, 1998 shares of Phoenix Money Market Series were
substituted for shares of Templeton Money Market Fund in this Subaccount.
</TABLE>
5
<PAGE>
SPECIAL TERMS
- --------------------------------------------------------------------------------
As used in this Prospectus, the following terms have the indicated meanings:
ACCOUNT: Phoenix Home Life Variable Accumulation Account.
ACCOUNT VALUE: The value of all assets held in the Account.
ACCUMULATION UNIT: A standard of measurement with respect to each Subaccount
used in determining the value of a Contract and the interest in the Subaccount
prior to the commencement of annuity payments.
ACCUMULATION UNIT VALUE: The value of one Accumulation Unit was set at $1.0000
on the date assets were first allocated to each Subaccount. The value of one
Accumulation Unit on any subsequent Valuation Date is determined by multiplying
the immediately preceding Accumulation Unit Value by the applicable Net
Investment Factor for the Valuation Period ending on such Valuation Date.
ANNUITANT: The person whose life is used as the measuring life under the
Contract. The primary Annuitant as shown on the Contract's Schedule Page, while
the primary Annuitant is living, and then the contingent Annuitant designated on
the application for the Contract or as later changed by the Owner, if the
contingent Annuitant is living at the death of the primary Annuitant.
ANNUITY OPTION: The provisions under which a series of annuity payments is made
to the Annuitant or other payee, such as Life Annuity with Ten Years Certain.
(See "Annuity Options.")
ANNUITY UNIT: A standard of measurement used in determining the amount of each
variable income payment under the variable payment annuity options.
CONTRACT: The individual deferred variable accumulation annuity contract
described in this Prospectus.
CONTRACT OWNER ("OWNER"): The person or entity, usually the one to whom the
Contract is issued, who has the sole right to exercise all rights and privileges
under the Contract except as otherwise provided in the Contract. The Owner may
be the Annuitant, an employer, a trust or any other individual or entity
specified in the application for the Contract. However, under Contracts used
with certain tax qualified plans, the Owner must be the Annuitant. A husband and
wife may be designated as joint owners, and if such a joint owner dies, the
other joint owner becomes the sole Owner of the Contract. If no Owner is named,
the Annuitant will be the Owner.
CONTRACT VALUE: Prior to the Maturity Date, the sum of all Accumulation Units
held in the Subaccounts of the Account and the value held in the GIA.
FIXED PAYMENT ANNUITY: A benefit providing for periodic payments of a fixed
dollar amount throughout the Annuity Period that does not vary with or reflect
the investment performance of any Subaccount.
FUNDS: Templeton Variable Products Series Fund and The Phoenix Edge Series Fund.
GIA: An allocation option under which amounts deposited are guaranteed to earn a
fixed rate of interest. Excess interest may also be credited, in the sole
discretion of Phoenix.
ISSUE DATE: The date that the initial purchase payment is invested in a
Subaccount.
MATURITY DATE: The date elected by the Owner pursuant to the Contract as of
which annuity payments will commence. The election is subject to certain
conditions described in "The Annuity Period."
MINIMUM INITIAL PURCHASE PAYMENT: The amount which must be paid when a Contract
is purchased. Minimum Initial Purchase Payments of $1,000, $25, $25, and $1,000
annually are required for nonqualified, IRA, bank draft program and qualified
plan contracts, respectively.
MINIMUM SUBSEQUENT PAYMENT: The amount which must be paid when any subsequent
payments are made, after the Minimum Initial Purchase Payment has been made (see
above). The minimum subsequent payment for all Contracts is $25.
PAYMENT UPON DEATH: The obligation of Phoenix under a Contract to make a payment
on the death of the Owner or Annuitant at any time before the Maturity Date of a
Contract (see "Payment Upon Death Before Maturity Date") or after the Maturity
Date of a Contract (see "Payment Upon Death After Maturity Date").
PHOENIX: Phoenix Home Life Mutual Insurance Company.
SERIES: A separate investment portfolio of a Fund. Each Series is, in effect, a
separate mutual fund and shares of each Series are sold to a subaccount of the
account.
VALUATION DATE: A Valuation Date is every day the New York Stock Exchange
("NYSE") is open for trading.
VARIABLE PAYMENT ANNUITY: An annuity providing payments that vary in amount
after the first payment is made, in accordance with the investment experience of
the selected Subaccounts.
VPMO: Variable Products Mail Operation division of Phoenix that receives and
processes incoming mail for Variable Products Operations.
VPO: The Variable Products Operations Division of Phoenix.
SUMMARY
- --------------------------------------------------------------------------------
The individual deferred variable accumulation annuity contracts
("Contracts") described in this Prospectus present a dynamic concept in
retirement planning designed to give you maximum flexibility in attaining your
investment goals. There are no deductions from your purchase payments so that
your entire payment is put to work in the investment portfolio(s) of your
choice. Currently, the Account consists of several Subaccounts, which invest
their assets exclusively in specified Series of the Funds. Each Series has a
distinct investment objective. You choose the Subaccount or Subaccounts in which
you wish to invest among the available Subaccounts and/or the GIA when you make
your purchase payments under the Contracts. You
6
<PAGE>
also may transfer amounts held under the Contracts among the available
Subaccounts and/or the GIA. When the accumulation period ends, the then Contract
Value will be applied to furnish a Variable Payment Annuity unless a Fixed
Payment Annuity is elected. If a Fixed Payment Annuity is elected, payments
will, thereafter, be fixed and guaranteed by Phoenix.
The Contracts are eligible for purchase as nontax-qualified retirement plans
by individuals. Contracts also are eligible for use in connection with (1)
pension or profit-sharing plans qualified under the Self-Employed Individuals
Tax Retirement Act of 1962, known as "HR 10" or "Keogh" plans, (2) pension or
profit-sharing plans qualified under Sections 401(a) and 401(k) of the Internal
Revenue Code of 1986, as amended (the "Code"), known as "corporate plans," (3)
annuity purchase plans adopted under the provisions of Section 403(b) of the
Code by public school systems and certain other tax-exempt organizations (TSA),
(4) IRA plans satisfying the requirements of Section 408 of the Code and (5)
government plans and deferred compensation plans maintained by a state or
political subdivision thereof under Section 457 of the Code. These plans are
sometimes referred to in this Prospectus as "tax-qualified plans."
HOW ARE PAYMENTS MADE UNDER THE CONTRACTS?
A Contract Owner may make payments at any time until the Maturity Date
selected by the Owner pursuant to the terms of the Contract. The payments
purchase Accumulation Units of the Subaccount(s) and/or are deposited in the
GIA, as chosen by the Owner. (See "Purchases of Contracts" and "The Accumulation
Period.")
IS THERE A GUARANTEED OPTION?
Yes. A Contract Owner may elect to have payments allocated to the GIA.
Amounts allocated to the GIA earn a fixed rate of interest and Phoenix also may,
in its sole discretion, credit excess interest. (See Appendix A.)
WHAT ARE THE INVESTMENT OPTIONS UNDER THE CONTRACTS?
The Contracts currently have a number of Series of the Templeton Variable
Products Series Fund and The Phoenix Edge Series Fund as investment options.
Each Series has a specific investment objective. (For a complete list of the
Series offered and a brief discussion of their respective investment objectives,
see "The Funds.")
FOR ADDITIONAL INFORMATION CONCERNING THE FUNDS, SEE THE ACCOMPANYING FUND
PROSPECTUSES, WHICH SHOULD BE READ CAREFULLY BEFORE INVESTING.
WHAT SALES COSTS ARE CHARGED TO PURCHASE PAYMENTS UNDER THE CONTRACTS?
No deductions are made from purchase payments. A deduction for sales charges
may be taken from the proceeds when a Contract is surrendered or when an amount
is withdrawn, if assets have not been held under the Contract for a certain
period of time. However, no deduction for sales charges will be taken after the
annuity period has begun, unless unscheduled withdrawals are made under Annuity
Option K. If a sales charge is imposed, it is imposed on a first-in, first-out
basis. No sales charge will be imposed in the event that the Annuitant dies
before the date that annuity payments will commence. The total deferred sales
charges on a Contract will never exceed 9% of the total purchase payments. (See
"Sales Charges.")
WHAT FEES ARE CHARGED TO THE ACCOUNT?
There is a mortality and expense risk fee and a daily administrative fee
assessed against the Account. (See "Charges for Administrative Services.")
ARE THERE ANY OTHER CHARGES OR DEDUCTIONS?
In most states, premium taxes are imposed when a Contract is annuitized
rather than when purchase payments are made by the Contract Owner. Phoenix will
reimburse itself on the earlier date of a partial withdrawal, surrender of the
Contract, Maturity Date or payment of death proceeds. (See "Premium Tax.")
In addition, certain charges are deducted from the assets of the Funds. For
investment management services, each Series of a Fund pays the investment
manager a separate monthly fee calculated on the basis of its average daily net
assets during the year. (See "Other Charges.")
For a more complete description of the fees chargeable to the Account, see
"Deductions and Charges."
WHAT ARE THE MINIMUM INITIAL AND SUBSEQUENT PURCHASE PAYMENTS?
For nontax-qualified plans and IRAs, the following minimum purchase payments
apply (unless investments are made pursuant to a bank draft investment program):
Initial minimum per Contract: $ 1,000
Subsequent minimum per Contract: $ 25
For Contracts issued in connection with IRAs or pursuant to a bank draft
investment program, the following minimum purchase payments apply:
Initial minimum per Contract: $ 25
Subsequent minimum per Contract: $ 25
For Contracts issued under tax-qualified or employer-sponsored plans other
than IRAs, a minimum annual premium of $1,000 must be paid.
MAY I ALLOCATE MY PURCHASE PAYMENTS AMONG AVAILABLE OPTIONS?
You may choose the amount of each purchase payment to be directed to each
Subaccount and/or to the GIA, provided that the Minimum Initial Purchase Payment
requirements have been met. (See "Purchase of Contracts.")
MAY I TRANSFER AMOUNTS ALLOCATED TO A SUBACCOUNT OR THE GIA?
You may transfer some or all of the Contract Value among one or more
available Subaccounts and/or the GIA provided that the Minimum Initial Purchase
Payment requirements have been met. Also, if elected, the Temporary Money Market
Allocation Amendment provides that no transfers may be made until the
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<PAGE>
termination of the free look period. Currently, there is not a limit to the
number of transfers per Contract year, however, Phoenix may, in the future,
limit the number of transfers allowed during a Contract year, but in no event
will the limit be less than six transfers per year (see "Transfers"). However,
there are additional restrictions on transfers from the GIA as described in
Appendix A.
DO THE CONTRACTS PROVIDE FOR PAYMENT UPON DEATH?
The Contracts provide that if the Owner and Annuitant are the same and the
Owner/Annuitant dies before annuity payments begin and there is no surviving
joint Owner, payment to the beneficiary will be made and no surrender charge
will be imposed. The Contracts also provide for payment upon death after the
Contract Maturity Date. (See "Payment Upon Death Before Maturity Date" and
"Payment Upon Death After Maturity Date.")
IS THERE A SHORT-TERM CANCELLATION RIGHT?
An Owner may surrender a Contract for any reason within 10 days after its
receipt and receive in cash the adjusted value of the initial purchase payment.
The Owner may receive more or less than the initial payment depending on
investment experience within the Subaccounts during the 10-day period, unless
the Contract is issued with a Temporary Money Market Allocation Amendment, in
which case the initial purchase payment is refunded. If the initial purchase
payment, or any portion thereof, was allocated to the GIA, that payment (or
portion) and any earned interest is refunded. (See "Free Look Period.")
HOW WILL THE ANNUITY PAYMENTS BE DETERMINED ON THE MATURING OF A CONTRACT?
The Owner and Annuitant bear the risk of the investment performance during
the accumulation period unless the GIA is selected. Once annuity payments
commence, investment in the Account will continue and the Owner and Annuitant
will continue to bear the risk of investment unless a Fixed Payment Annuity is
elected. If a Fixed Payment Annuity is elected, payments will be fixed and
guaranteed by the general assets of Phoenix. The fixed payment schedule is a
part of the Contract and the Owner also may be given the opportunity to choose
another annuity option available from Phoenix at the maturity of the Contract.
If the current practice settlement rates in effect for Contracts are more
favorable than the applicable rates guaranteed under the Contract, the current
rates shall be applied. (See "The Annuity Period.")
CAN MONEY BE WITHDRAWN FROM THE CONTRACTS?
If the Annuitant is living, amounts held under the Contracts may be
withdrawn in whole or in part prior to the Maturity Date, or after the Maturity
Date under Annuity Option K. Certain limitations apply to Contracts held under
403(b) plans (see "Qualified Plans; Tax-Sheltered Annuities"). There may be a
federal tax penalty assessed in connection with withdrawals (see "Federal Income
Taxes").
CAN THE CONTRACTS LAPSE?
If on any Valuation Date the total Contract Value equals zero, or, the
premium tax reimbursement due on a surrender or partial withdrawal is greater
than or equal to the Contract Value, the Contract will immediately terminate and
lapse without value.
THE FOREGOING SUMMARY INFORMATION SHOULD BE READ IN CONJUNCTION WITH THE
DETAILED INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS.
PERFORMANCE HISTORY
- --------------------------------------------------------------------------------
From time to time, the Account may include the performance history of any or
all Subaccounts in advertisements, sales literature or reports. PERFORMANCE
INFORMATION ABOUT EACH SUBACCOUNT IS BASED ON PAST PERFORMANCE ONLY AND IS NOT
AN INDICATION OF FUTURE PERFORMANCE. Performance information may be expressed as
yield and effective yield of the Money Market Subaccount, as yield of the Bond
Subaccount and as total return of any Subaccount. For the Bond 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 the 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 $1,000 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 all applicable Contract charges except for premium taxes
(which vary by state) at the beginning of the relevant period.
For those Subaccounts within the Account that have not been available for
one of the quoted periods, the standardized average annual total return
quotations may show the investment performance such Subaccount would have
achieved (reduced by the applicable charges) had it been available to invest in
shares of the Funds for the period quoted.
Below are quotations of (1) standardized average annual total return for
contracts calculated as described above, and (2) nonstandardized total returns
(excluding sales charges) for the calendar years indicated.
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIOD ENDING 12/31/97
------------------------------
COMMENCE- FROM
INVESTMENT OPTION MENT DATE 1 YEAR 3 YEARS 5 YEARS INCEPTION
- ----------------- --------- ------- ------- ------- ---------
Stock-Class 1.............. 11/04/88 5.23% 16.88% 15.66% 11.51%
Asset Allocation-Class 1... 11/28/88 8.66% 16.12% 13.64% 11.10%
Money Market........ ...... 12/02/88 (1.21%) 2.61% 2.49% 3.48%
Bond-Class 1............... 01/04/89 (3.61%) 6.23% 4.65% 5.89%
International-Class 1...... 05/01/92 7.18% 15.04% 16.76% 13.23%
Developing Markets-
Class 1.................... 09/15/96 (33.51%) N/A N/A (27.16%)
8
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ANNUAL TOTAL RETURNS*
YEAR ASSET DEV.
STOCK ALLOC. MONEY BOND INTL. MKT.
CLASS 1 CLASS 1 MARKET CLASS 1 CLASS 1 CLASS 1
------- ------- ------ ------- -------- -------
1989......... 13.12% 11.77% 6.56% 6.13% N/A N/A
1990......... (12.28)% (9.24)% 6.06% 4.89% N/A N/A
1991......... 25.81% 26.01% 4.13% 14.33% N/A N/A
1992......... 5.68% 6.62% 1.69% 4.11% (7.00)% N/A
1993......... 32.25% 24.46% 1.02% 9.95% 45.37% N/A
1994......... (3.56)% (4.31)% 2.07% (6.20)% (3.59)% N/A
1995......... 23.57% 20.90% 3.98% 13.37% 14.19% N/A
1996......... 20.77% 17.26% 3.55% 7.96% 22.37% 0.96%
1997......... 10.36% 13.95% 3.62% 1.10% 12.40% (30.19%)
*Sales charges have not been deducted from the annual total return.
THESE RATES OF RETURN ARE NOT AN ESTIMATE OR
GUARANTEE OF FUTURE PERFORMANCE
Performance data is historical and includes changes in share price and
reinvestment of dividends and capital gains.
Current yield for the Money Market Subaccount is based upon the income
earned by the Subaccount over a seven-day 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 stated as a percentage of the investment. Effective yield is
calculated similarly but when annualized, the income earned by the investment is
assumed to be reinvested in Subaccount units and thus compounded in the course
of a 52-week period. Yield and effective yield reflect the recurring charges on
the Account level, including the annual administrative fee.
Yield calculations of the Money Market Subaccount used for illustration
purposes are based on the consideration of a hypothetical Contract Owner's
account having a balance of exactly one Unit at the beginning of a seven-day
period, which period will end on the date of the most recent financial
statements. The yield for the Subaccount during this seven-day period will be
the change in the value of the hypothetical participant's account's original
Unit. The following is an example of this yield calculation for the Money Market
Subaccount based on a seven-day period ending December 31, 1997.
Example:
Assumptions:
Value of hypothetical pre-existing account with exactly
one unit at the beginning of the period.................... 1.380950
Value of the same account (excluding capital changes)
at the end of the seven-day period......................... 1.381824
Calculation:
Ending account value........................................ 1.381824
Less beginning account value................................ 1.380950
Net change in account value................................. 0.000874
Base period return:
(adjusted change/beginning account value)................... 0.000633
Current yield = return x (365/7) = ........................... 3.30%
Effective yield = [(1 + return)365/7]-1 = .................... 3.36%
The current yield and effective yield information will fluctuate, and
publication of yield information may not provide a basis for comparison with
bank deposits, other investments which are insured and/or pay a fixed yield for
a stated period of time, or other investment companies, due to charges which
will be deducted on the Account level.
A Subaccount's performance may be compared to that of the Consumer Price
Index or various unmanaged equity or bond indices such as the Dow Jones
Industrial Average, the Standard & Poor's 500 Composite Stock Price Index ("S&P
500"), and the Europe Australia Far East Index, and also may be compared to the
performance of the other variable annuity accounts as reported by services such
as Lipper Analytical Services, Inc. ("Lipper"), CDA Investment Technologies,
Inc. ("CDA") and Morningstar, Inc. or in other publications. Lipper and CDA are
widely recognized independent rating/ranking services. A Subaccount's
performance also may be compared to that of other investment or savings
vehicles.
Advertisements, sales literature and other communications may contain
information about any Fund's or Adviser's current investment strategies and
management style. Current strategies and style may change to respond to a
changing market and economic conditions. From time to time, the Funds may
discuss specific portfolio holdings or industries in such communications. To
illustrate components of overall performance, the Funds 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
Fund's portfolio; or compare a Fund's equity or bond return figure to well-known
indices of market performance, including, but not limited to: S&P 500 Index, Dow
Jones Industrial Average, First Boston High Yield Index and Solomon Brothers
Corporate and Government Bond Indices.
The Fund's annual report, available upon request and without charge,
contains a discussion of the performance of the Fund and a comparison of that
performance to a securities market index.
THE VARIABLE ACCUMULATION ANNUITY
- --------------------------------------------------------------------------------
The individual deferred variable accumulation annuity contract (the
"Contract") issued by Phoenix may be significantly different from a fixed
annuity contract in that, unless the GIA is selected, it is the Owner and
Annuitant under a Contract who assume the risk of investment gain or loss rather
than Phoenix. Under a fixed annuity contract the insurance company guarantees a
specified interest rate and specified monthly annuity payments. However, except
for payments allocated to the GIA, the amounts which will be available for
annuity payments under a Contract will depend on the investment performance of
the Subaccounts of the Phoenix Home Life Variable Accumulation Account (the
"Account"). Upon the maturity of a Contract, the amounts held under a Contract
will continue to be invested in the Account and monthly annuity payments will
vary in accordance with the investment experience of the selected Subaccounts.
However, a fixed annuity may be elected, in which case Phoenix will guarantee
specified monthly annuity payments.
The Owner selects the investment objective of each Contract on a continuing
basis by directing the allocation of purchase
9
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payments and accumulated value among the GIA or the Subaccounts. Each of the
Subaccounts invests exclusively in shares of a corresponding Series of the
Templeton Variable Products Series Fund or The Phoenix Edge Series Fund (the
"Funds").
PHOENIX AND THE ACCOUNT
- --------------------------------------------------------------------------------
Phoenix is a mutual life insurance company originally chartered in
Connecticut in 1851. Its executive office is at One American Row, Hartford,
Connecticut 06115, and its main administrative office is at 100 Bright Meadow
Boulevard, Enfield, Connecticut 06083-1900. Its New York principal office is at
10 Krey Boulevard, East Greenbush, New York 12144. Phoenix is the nation's 9th
largest mutual life insurance company and has consolidated assets of $18.5
billion. Phoenix sells insurance policies and annuity contracts through its own
field force of full-time agents and through brokers. Its operations are
conducted in all 50 states, the District of Columbia, Canada and Puerto Rico.
On June 21, 1982, Phoenix established the Account, a separate account
created under the insurance laws of Connecticut. The Account is registered with
the SEC as a unit investment trust under the Investment Company Act of 1940 (the
"1940 Act") and it meets the definition of a "separate account" under the Act.
Registration under the Act does not involve supervision of the management or
investment practices or policies of the Account or Phoenix.
On July 1, 1992, the Account's domicile was transferred to New York. Under
New York law, all income, gains or losses of the Account, whether realized or
not, must be credited to or charged against the amounts placed in the Account
without regard to the other income, gains and losses of Phoenix. The assets of
the Account may not be charged with liabilities arising out of any other
business that Phoenix may conduct. Obligations under the Contracts are
obligations of Phoenix.
Contributions to the GIA are not invested in the Account; rather, they
become part of the general account of Phoenix (the "General Account"). The
General Account supports all insurance and annuity obligations of Phoenix and is
made up of all of its general assets other than those allocated to any separate
account such as the Account. For more complete information concerning the GIA,
see Appendix A.
THE FUNDS
- --------------------------------------------------------------------------------
Each available Subaccount of the Account invests exclusively in Class 1 of a
corresponding Series of the Funds except for Phoenix Money Market Series which
is offered in a single class. The investment manager of Templeton Stock,
Templeton Asset Allocation, Templeton International and Templeton Bond Series is
Templeton Investment Counsel, Inc.; Templeton Asset Management Ltd. is the
investment manager for Templeton Developing Markets Series; and Phoenix
Investment Counsel, Inc. is the investment manager for the Money Market Series.
The investment objective and primary investments of each of the Series of the
Funds are as follows:
(1) PHOENIX MONEY MARKET ("MONEY MARKET") SERIES--The investment objective
of the Money Market Series is to provide maximum current income
consistent with capital preservation and liquidity. The Money Market
Series invests exclusively in high quality money market instruments.
(2) TEMPLETON BOND ("BOND") SERIES--Seeks high current income. It tries to
achieve this goal through a flexible policy of investing primarily in
debt securities of companies, governments, and government agencies of
various nations throughout the world and in debt securities which are
convertible into common stock of such companies. The debt securities
selected may be rated in any category by Standard & Poor's Corporation
("S&P") or Moody's Investors Service, Inc. ("Moody's") as well as
securities which are unrated by any rating agency.
(3) TEMPLETON STOCK ("STOCK") SERIES--Pursues capital growth. It tries to
achieve this goal through a policy of investing primarily in common
stocks issued by companies, large and small, in various nations
throughout the world.
(4) TEMPLETON ASSET ALLOCATION ("ALLOCATION") SERIES--Seeks a high level of
total return through a flexible policy of investing in stocks of
companies in any nation, debt securities of companies and governments
of any nation, and in money market instruments. Changes in the asset
mix will be made in an attempt to capitalize on total return potential
produced by changing economic conditions throughout the world.
(5) TEMPLETON INTERNATIONAL ("INTERNATIONAL") SERIES--Seeks long-term
capital growth through a flexible policy of investing in stocks and
debt obligations of companies and governments outside the United
States. Any income realized will be incidental. Although the Series
generally invests in common stock, it also may invest in preferred
stocks and certain debt securities such as convertible bonds which are
rated in any category by S&P or Moody's or which are unrated by any
rating agency.
(6) TEMPLETON DEVELOPING MARKETS ("DEVELOPING MARKETS") SERIES--Seeks
long-term capital appreciation. It tries to achieve this goal by
investing primarily in equity securities of issuers in countries having
developing markets.
Each Series will be subject to the market fluctuations and risks inherent in
the ownership of any security and there can be no assurance that any Series'
stated investment objective will be realized. For a discussion of the risks
associated with investing in high yield bonds and the special risks inherent in
foreign investing, including currency fluctuation and political uncertainty,
please see the accompanying Fund prospectuses under "Risk Factors."
Shares of the Funds may be sold to other separate accounts of Phoenix or its
affiliates or to other insurance companies
10
<PAGE>
funding variable annuity or variable life insurance contracts. It is
conceivable that it may be disadvantageous for variable life insurance separate
accounts and variable annuity separate accounts to invest in the Funds
simultaneously. Although neither Phoenix nor the Funds currently foresee any
such disadvantages either to variable annuity Contract Owners or to variable
life insurance policyowners, the Funds' Trustees intend to monitor events in
order to identify any material conflict between variable annuity Contract Owners
and variable life insurance policyowners and to determine what action, if any,
should be taken in response thereto. Material conflicts could result from, for
example, (1) changes in state insurance laws, (2) changes in federal income tax
laws, (3) changes in the investment management of any portfolio of the Funds, or
(4) differences in voting instructions between those given by variable life
insurance policyowners and those given by variable annuity Contract Owners.
FOR ADDITIONAL INFORMATION CONCERNING THE FUNDS AND THEIR SERIES, PLEASE SEE
THE ACCOMPANYING FUND PROSPECTUSES, WHICH SHOULD BE READ CAREFULLY BEFORE
INVESTING.
PURCHASE OF CONTRACTS
- --------------------------------------------------------------------------------
The Minimum Initial Purchase Payment for each Contract purchased is $1,000.
However, for Contracts purchased in connection with IRAs, the Minimum Initial
Purchase Payment is $25 and for Contracts purchased in connection with
tax-qualified or employer-sponsored plans, a minimum annual payment of $1,000 is
required. In addition, a Contract Owner may authorize his bank to draw $25 or
more from his personal checking account monthly to purchase units in any
available Subaccount or in the GIA. The amount the Contract Owner designates
will be automatically invested on the date the bank draws on his account. If
this "check-o-matic" privilege is selected, the Minimum Initial Purchase Payment
is $25. This payment must accompany the application. Each subsequent purchase
payment under a Contract must be at least $25.
Generally, a Contract may not be purchased with respect to a proposed
Annuitant who is 80 years of age or older. Total purchase payments in excess of
$1,000,000 cannot be made without the permission of Phoenix. While the Annuitant
is living and the Contract is in force, purchase payments may be resumed at any
time before the Maturity Date of a Contract.
Purchase payments received under the Contracts will be allocated to the
Money Market, Bond, Stock, Allocation, International and Developing Markets
Subaccounts and/or to the GIA, or a combination thereof, in the proportion
specified in the application for the Contract or as indicated by the Owner from
time to time. Changes in the allocation of purchase payments will be effective
as of receipt by VPMO of written notice of election in a form satisfactory to
Phoenix and will apply to any purchase payments accompanying such notice or made
subsequent to the receipt of the notice, unless otherwise requested by the
Contract Owner.
DEDUCTIONS AND CHARGES
- --------------------------------------------------------------------------------
PREMIUM TAX
Whether or not a premium tax is imposed will depend upon, among other
things, the Owner's state of residence, the Annuitant's state of residence, the
status of Phoenix within those states and the insurance tax laws of those
states. Phoenix will pay any premium tax due and will reimburse only itself upon
the earlier of partial withdrawal, surrender of the Contract, the Maturity Date
or payment of death proceeds. For a list of states and premium taxes, see
Appendix B to this Prospectus.
SALES CHARGES
A deduction for contingent deferred sales charges (also referred to in this
Prospectus as surrender or sales charges) for these Contracts may be taken from
proceeds of withdrawals from, or complete surrender of, the Contracts if assets
are not held in the Account for a certain period of time (see chart below). No
sales charge will be taken after the annuity period has begun except with
respect to unscheduled withdrawals under Option K (see "Annuity Options"). Any
sales charge is imposed on a first-in, first-out basis.
With respect to withdrawals or surrenders, up to 10% of the Contract Value
may be withdrawn in a Contract year, either in a lump sum or by multiple
scheduled or unscheduled partial surrenders without the imposition of a sales
charge. During the first Contract year, the 10% withdrawal without a sales
charge is only available on Contracts issued on or after May 1, 1996 and will be
determined based on the Contract Value at the time of the first partial
surrender. In all subsequent years, the 10% will be based on the previous
Contract anniversary value. The deduction for sales charges, expressed as a
percentage of the amount redeemed in excess of the 10% allowable amount, is as
follows:
AGE OF DEPOSIT IN CONTINGENT DEFERRED
COMPLETE YEARS FROM SALES CHARGE AS A
PAYMENT DATE UNIT PERCENTAGE OF
RELEASED WAS CREDITED AMOUNT WITHDRAWN
--------------------- ----------------
0 6%
1 5%
2 4%
3 3%
4 2%
5 1%
6 and over 0%
In the event that the Annuitant dies before the Maturity Date of the
Contract, the sales charge described in the table above will not apply.
The total sales charges on a Contract will never exceed 9% of the total
purchase payments, and the applicable level of sales charge cannot be changed
with respect to outstanding Contracts. Sales charges imposed in connection with
partial surrenders will be deducted from the Subaccounts and the GIA on a pro
rata basis. Any distribution costs not paid for by sales charges will be paid by
Phoenix from the assets of its General Account.
CHARGES FOR MORTALITY AND EXPENSE RISKS
While fixed annuity payments to Annuitants will reflect the investment
performance of the applicable Series of the Funds
11
<PAGE>
during the Accumulation Period, the amount of such payments will not be
decreased because of adverse mortality experience of Annuitants as a class or
because of an increase in actual expenses of Phoenix over the expense charges
provided for in the Contracts. Phoenix assumes the risk that Annuitants as a
class may live longer than expected (necessitating a greater number of annuity
payments) and that its expenses may be higher than the deductions for such
expenses.
In assuming the mortality risks, Phoenix agrees to continue life annuity
payments, determined in accordance with the annuity tables and other provisions
of the Contract, to the Annuitant or other payee for as long as he or she may
live.
Phoenix charges each Subaccount the daily equivalent of 0.40% on an annual
basis of the current value of the Subaccount's net assets for mortality risks
assumed and the daily equivalent of 0.85% on an annual basis for expense risks
assumed. No mortality and expense risk charges are deducted from the GIA. If the
percentage charges prove insufficient to cover actual insurance underwriting
costs and excess administrative costs then the loss will be borne by Phoenix;
conversely, although it is not anticipated, if the amount deducted proves more
than sufficient, the excess will be a profit to Phoenix. Any such profit may be
used, as a part of Phoenix's General Account's assets to meet sales expenses, if
any, which are in excess of sales commission revenue generated from any sales
charges. Phoenix has concluded that there is a reasonable likelihood that the
distribution financing arrangement being used in connection with the Contracts
will benefit the Account and the Contract Owners.
CHARGES FOR ADMINISTRATIVE SERVICES
Phoenix is responsible for administering the Account. In this connection,
Phoenix, among other things, maintains an account for each Owner and Annuitant,
makes all disbursements of benefits, furnishes administrative and clerical
services for each Contract, makes disbursements from the Account to pay
obligations chargeable to the Account, maintains the accounts, records and other
documents relating to the business of the Account required by regulatory
authorities, causes the maintenance of the registration and qualification of the
Account under laws administered by the SEC, prepares and distributes notices and
reports to Owners, and the like.
To cover certain of its costs of administration, such as preparation of
billings and statements of account, Phoenix charges each annuity contract $35
each year. A reduced charge may apply to Contracts issued after September 1,
1994. This cost-based charge is deducted from the Subaccount or the GIA holding
the assets of the Owner or on a pro rata basis from two or more Subaccounts or
the GIA in relation to their values under the Contract, and is not subject to
increase but may be subject to decrease. This charge is deducted on the Contract
anniversary date for services rendered since the preceding Contract anniversary
date. Upon a surrender of a Contract, the entire annual administrative charge of
$35 is deducted regardless of when the surrender occurs.
Phoenix also charges each Subaccount available through a Contract the daily
equivalent of 0.125% on an annual basis of the accumulated value of the
Subaccount to cover its variable costs of administration, such as printing and
distribution of Contract Owner mailings. This fee is not deducted from the GIA.
Phoenix may reduce the annual administrative charge or the daily
administrative fee for Contracts issued under group or sponsored arrangements.
Generally, administrative costs per Contract vary with the size of the group or
sponsored arrangement, its stability as indicated by its term of existence and
certain characteristics of its members, the purposes for which the Contracts are
purchased and other factors. The amounts of reductions will be considered on a
case-by-case basis and will reflect the reduced administrative costs expected as
a result of sales to a particular group or sponsored arrangement.
It also receives compensation from the investment manager (out of the
manager's own resources) for administrative services provided to the Developing
Markets Fund Class I.
OTHER CHARGES
Charges for investment and business management are paid out of the assets of
the Funds.
For investment management services, each Series pays a separate monthly fee
calculated on the basis of its average daily net assets during the year.
These Fund charges and other expenses are described more fully in the
accompanying Fund prospectuses.
THE ACCUMULATION PERIOD
- --------------------------------------------------------------------------------
ACCUMULATION UNITS
Initial purchase payments will be applied within two days if the application
for a Contract is complete. If an incomplete application form is completed
within five business days of receipt by VPMO, the initial purchase payment will
be applied within two days of the completion of the application. In the event
that VPO does not accept the application within five business days or if an
application is not completed within five business days of receipt by VPMO, then
the purchase payment will be immediately returned. If the GIA is chosen,
additional purchase payments are deposited on the date of receipt of such
purchase payment at VPMO. If one or more of the Subaccounts is chosen,
additional purchase payments are applied to the purchase of Accumulation Units
of the Subaccount(s) chosen, at the value of such Accumulation Units next
determined after the receipt of such purchase payment at VPMO. The number of
Accumulation Units of a Subaccount purchased with a specific purchase payment
will be determined by dividing the applied purchase payment by the value of an
Accumulation Unit in that Subaccount next determined after receipt of the
purchase payment. The value of the Accumulation Units of a Subaccount will vary
depending upon the investment performance of the applicable Series of the Fund,
the fee of the Fund's investment adviser and the charges and deductions made
against the Subaccount.
12
<PAGE>
ACCUMULATION UNIT VALUES
At any date prior to the Maturity Date of the Contract, the total value of
the Accumulation Units in a Subaccount which has been credited under a Contract
can be computed by multiplying the number of such Units by the appropriate value
of an Accumulation Unit in effect for such date. The value of an Accumulation
Unit on a day other than a Valuation Date is the value of the Accumulation Unit
on the next Valuation Date. The number of Accumulation Units in each Subaccount
credited under each Contract and their current value will be reported to the
Owner at least annually.
TRANSFERS
A Contract Owner may, at any time but no later than 30 days prior to the
Maturity Date of a Contract, elect to transfer all or any part of the Contract
Value among one or more Subaccounts or the GIA. THERE ARE ADDITIONAL
RESTRICTIONS ON TRANSFERS FROM THE GIA AS DESCRIBED BELOW AND IN APPENDIX A. Any
such transfer from a Subaccount will result in the redemption of Accumulation
Units, and if another Subaccount is selected, in the purchase of Accumulation
Units on the basis of the respective values next determined after the receipt by
VPMO of written notice of election in a form satisfactory to Phoenix. A transfer
among Subaccounts or the GIA does not automatically change the payment
allocation schedule of a Contract.
A Contract Owner also may request transfers and changes in payment
allocations among available Subaccounts or the GIA by calling 1-800-243-4840
between the hours of 8:30 a.m. and 4:00 p.m. Eastern Time. Unless the Contract
Owner elects in writing not to authorize telephone transfers or allocation
changes, telephone transfer and allocation change orders also will be accepted
on behalf of the Contract Owner from his or her registered representative.
Phoenix will employ reasonable procedures to confirm that telephone instructions
are genuine. They will require verification of account information and will
record telephone instructions on tape. All telephone transfers will be confirmed
in writing to the Contract Owner. To the extent that procedures reasonably
designed to prevent unauthorized transfers are not followed, Phoenix may be
liable for following telephone instructions for transfers that prove to be
fraudulent. However, the Contract Owner would bear the risk of loss resulting
from instructions entered by an unauthorized third party that Phoenix reasonably
believes to be genuine. These telephone privileges may be modified or terminated
at any time. During times of extreme market volatility, it may be difficult to
exercise and a Contract Owner should submit a written request.
A Contract Owner also may elect to transfer funds automatically among the
Subaccounts or the GIA on a monthly, quarterly, semiannual or annual basis under
the Systematic Transfer Program for Dollar Cost Averaging ("Systematic Transfer
Program"). Under this Systematic Transfer Program, the minimum initial and
subsequent transfer amounts are $25 monthly, $75 quarterly, $150 semiannually or
$300 annually. A Contract Owner must have an initial value of $2,000 in the GIA
or the Subaccount that funds will be transferred from, and if the value in that
Subaccount or the GIA drops below the elected transfer amount, the entire
remaining balance will be transferred and no more systematic transfers will be
processed. Funds may be transferred from only one Subaccount or the GIA, but may
be allocated to multiple Subaccounts. Under the Systematic Transfer Program,
Contract Owners may transfer approximately equal amounts from the GIA over a
minimum 18-month period.
Upon completion of the Systematic Transfer Program, the Contract Owner must
notify VPO at (800) 447-4312 or in writing to VPMO to implement another
Systematic Transfer Program.
All transfers under the Systematic Transfer Program will be executed on the
basis of the respective values as of the first of the month following receipt of
the Systematic Transfer Program request. If the first of the month falls on a
holiday or weekend, then the transfer will be processed on the next succeeding
business day.
Unless Phoenix agrees otherwise or the Systematic Transfer Program has been
elected, a Contract Owner may make only one transfer per Contract year from the
GIA. Transfers will be effectuated on the date the transfer request was received
at VPMO, unless made pursuant to the Systematic Transfer Program as noted above.
For nonsystematic transfers, the amount that may be transferred from the GIA at
any one time cannot exceed the greater of $1,000 or 25% of the Contract Value in
the GIA at the time of transfer.
Because excessive trading can hurt Fund performance and harm Contract
Owners, Phoenix reserves the right to temporarily or permanently terminate
exchange privileges or reject any specific order from anyone whose transactions
seem to follow a timing pattern, including those who request more than one
exchange out of a Subaccount within any 30-day period. Phoenix will not accept
batched transfer instructions from registered representatives (acting under
powers of attorney for multiple Contract Owners), unless the registered
representative's broker-dealer firm and Phoenix have entered into a third party
transfer service agreement.
No sales charge will be assessed when a transfer is made. The date a payment
was credited for the purpose of calculating the sales charge will remain the
same notwithstanding the transfer. Currently, there is no charge for transfers;
however, the Account reserves the right to charge a transfer fee of $10 per
transfer after the first two in each Contract year to defray administrative
costs. Currently, unlimited transfers are permitted; however, the Account
reserves the right to limit the number of transfers made during each Contract
year a Contract is in existence. However, Contract Owners always will be
permitted at least six transfers during each Contract year. When the Temporary
Money Market Allocation Amendment has been elected, no transfers may be made
until the end of the free look period (see "Free Look Period").
Phoenix reserves the right to limit the number of Subaccounts you may elect
to a total of 18 at any one time and/or over the life of the Contract unless
required to be less to comply with changes in federal and/or state regulation,
including tax, securities and insurance law. As of the date of this Prospectus,
this limitation has no effect because fewer Subaccounts are offered.
13
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SURRENDER OF CONTRACT; PARTIAL WITHDRAWALS
Prior to the Maturity Date, if the Annuitant is living, a Contract Owner may
surrender the Contract for a cash payment representing the Contract Value or may
make partial withdrawals of cash in amounts representing less than the Contract
Value. Prior to the Maturity Date, the Contract Owner may withdraw up to 10% of
the Contract Value in a Contract year, either in a lump sum or by multiple
scheduled or unscheduled partial surrenders without the imposition of a sales
charge. During the first Contract year, the 10% withdrawal without a sales
charge is only available on Contracts issued on or after May 1, 1996 and will be
determined based on the Contract Value at the time of the first partial
surrender. In all subsequent years, the 10% will be based on the previous
Contract anniversary value. A signed written request for withdrawal must be sent
to VPMO. If the Contract Owner has not yet reached age 59 1/2, a 10% penalty tax
will apply on taxable income withdrawn (see "Federal Income Taxes"). The
appropriate number of Accumulation Units will be redeemed at their value next
determined after the receipt by VPMO of a written notice in a form satisfactory
to Phoenix. Unless the Owner designates otherwise, the Accumulation Units
redeemed in a partial withdrawal will be redeemed in each Subaccount in the same
proportion as the value of the Accumulation Units of the Contract is then
allocated among the Subaccounts. Also, Contract Values in the GIA will be
withdrawn in a partial withdrawal in the same proportion as the Contract Value
is then allocated to the GIA, unless the Owner designates otherwise. The
redemption value of Accumulation Units may be more or less than the purchase
payments applied under the Contract to purchase the Accumulation Units,
depending upon the investment performance in each Subaccount. The resulting cash
payment will be made in a single sum, ordinarily within seven days after receipt
of such notice. However, redemption and payment may be delayed under certain
circumstances (see "Deferment of Payment"). There may be adverse tax
consequences to certain surrenders and partial withdrawals (see "Surrenders or
Withdrawals Prior to the Contract Maturity Date"). Certain restrictions on
redemptions are imposed on Contracts used in connection with Code Section 403(b)
plans (see "Qualified Plans"; "Tax-Sheltered Annuities").
A deduction for sales charges may be imposed on partial withdrawals from,
and complete surrender of, a Contract (see "Sales Charges"). Any sales charge is
imposed on a first-in, first-out basis.
Any request for a withdrawal from, or complete surrender of, a Contract
should be mailed to Phoenix Variable Products Mail Operations, P.O. Box 8027,
Boston, Massachusetts 02266-8027.
LAPSE OF CONTRACT
If on any Valuation Date (see "Valuation Date"), the Contract Value is zero,
the Contract will immediately terminate and lapse without value. Within 30 days
after this Valuation Date, Phoenix will notify the Contract Owner in writing
that the Contract has lapsed.
PAYMENT UPON DEATH BEFORE MATURITY DATE
If the Owner is the Annuitant and dies before the Maturity Date, the death
benefit will be paid under the Contract to the Owner's/Annuitant's beneficiary.
If the Owner and the Annuitant are not the same and the Annuitant dies prior to
the Maturity Date, the contingent Annuitant becomes the Annuitant. If there is
no contingent Annuitant, the death benefit will be paid to the Annuitant's
beneficiary. The death benefit is calculated according to the following method.
If the death occurred during the first 6 years following the Contract date, this
payment would be equal to the greater of: (a) the sum of all purchase payments
made under the Contract less any prior partial withdrawals (see "Surrender of
Contract; Partial Withdrawals"); or (b) the Contract Value next determined
following receipt of a certified copy of the death certificate at VPMO. If the
death occurred during any subsequent 6-year period, this payment would be equal
to the greater of: (a) the death benefit that would have been payable at the end
of the immediately preceding 6-year period, plus any purchase payments made and
less any partial withdrawals since such date; or (b) the Contract Value next
determined following receipt of a certified copy of the death certificate at
VPO.
If the Owner and the Annuitant are not the same and the Owner dies prior to
the Maturity Date and there is no surviving joint Owner, upon receipt of due
proof of death, Phoenix will fully surrender the Contract and pay the cash
surrender value (Contract Value less any applicable sales charge) to the Owner's
beneficiary (see "Sales Charges").
Payments will be made in a single sum to the beneficiary designated by the
Owner prior to the Annuitant's death unless an optional method of settlement had
been elected by the Owner. If an optional method of settlement had not been
elected by the Owner, the beneficiary may elect an optional method of settlement
in lieu of a single sum. No deduction is made for sales or other expenses upon
such election (see "Sales Charges"). Notwithstanding the foregoing, if the
amount to be paid is less than $2,000, it will be paid in a single sum (see
"Annuity Options"). Depending upon state law, the payment to the beneficiary may
avoid probate. See also, "Distribution at Death Rules" under "Federal Income
Taxes. "
THE ANNUITY PERIOD
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VARIABLE ACCUMULATION ANNUITY CONTRACTS
Annuity payments will commence on the Contract's Maturity Date if the
Annuitant is then living and the Contract is then in force. On the Maturity Date
and thereafter, investment in the Account is continued unless a fixed payment
annuity is elected. No sales charge is taken. Each Contract provides, at the
time of its issuance, for a Variable Payment Life Annuity with Ten-Year Period
Certain unless a different annuity option is elected by the Owner (see "Annuity
Options"). Under a Variable Payment Life Annuity with 10-Year Period Certain,
annuity payments, which may vary in amount based on the performance of the
Subaccounts selected, are made monthly for life and, if the Annuitant dies
within 10 years after the Maturity Date, the Annuitant's beneficiary will be
paid the payments remaining in
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the 10-year period. A different form of annuity may be elected by the Owner
prior to the Maturity Date. Once annuity payments have commenced, the Annuity
Option may not be changed.
If the amount to be applied on the Maturity Date is less than $2,000,
Phoenix may pay such amount in one lump sum in lieu of providing an annuity. If
the initial monthly annuity payment under an Annuity Option would be less than
$20, Phoenix may also make a single sum payment equal to the total Contract
Value on the date the initial payment would be payable, in place of all other
benefits provided by the Contract, or make periodic payments quarterly,
semiannually or annually in place of monthly payments.
Each Contract specifies a provisional Maturity Date at the time of its
issuance. The Owner may subsequently elect a different Maturity Date. The
Maturity Date shall not be earlier than the first Contract anniversary or later
than the Contract anniversary nearest the Annuitant's 85th birthday, unless the
Contract is issued in connection with certain qualified plans. Generally, under
qualified plans, the Maturity Date must be such that distributions begin no
later than April 1st of the calendar year following the later of: (a) the year
in which the employee attains age 70 1/2; or (b) the calendar year in which the
employee retires. The date set forth in (b) does not apply to an IRA.
The Maturity Date election shall be made by written notice and must be
received by VPMO 30 days before the provisional Maturity Date. If a Maturity
Date, which is different from the provisional Maturity Date of the Contract, is
not elected by the Owner, the provisional Maturity Date becomes the Maturity
Date. Particular care should be taken in electing the Maturity Date of a
Contract issued under a TSA, a Keogh Plan or an IRA plan. (See "Tax-Sheltered
Annuities," "Keogh Plans" and "Individual Retirement Accounts.")
ANNUITY OPTIONS
Unless an alternative annuity payment option is elected on or before the
Maturity Date, the amounts held under a Contract on the Maturity Date will be
automatically applied to provide a 10-year period certain variable payment
monthly life annuity based on the life of the Annuitant under Option I described
below. Any annuity payments falling due after the death of the Annuitant during
the period certain will be paid to the Annuitant's beneficiary. Each annuity
payment will be based upon the value of the Annuity Units credited to the
Contract. The number of Annuity Units in each Subaccount to be credited is based
on the value of the Accumulation Units in that Subaccount and the applicable
annuity purchase rate. The purchase rate differs according to the payment option
selected and the age of the Annuitant. The value of the Annuity Units will vary
with the investment performance of each Subaccount to which Annuity Units are
credited based on an assumed investment return of 4 1/2% per year. This rate is
a fulcrum rate around which Variable Annuity payments will vary to reflect
whether actual investment experience of the Subaccount is better or worse than
the assumed investment return. The assumed investment return and the calculation
of variable income payments for such 10-year period certain variable payment
life annuity and for Options J and K described below are described in more
detail in Part 8 of the Contract and in the SAI.
In lieu of the 10-year period certain variable payment life annuity (see
"Option I--Variable Payment Life Annuity with Ten-Year Period Certain" below),
the Owner may, by written request received by VPMO on or before the Maturity
Date of the Contract, elect any of the other annuity payment options described
below. No surrender charge will be assessed under any annuity option.
The level of annuity payments payable under the following options is based
upon the option selected and, depending on the option chosen, such factors as
the age at which payments begin, the form of annuity, annuity purchase rates,
assumed investment return (for variable payment annuities) and the frequency of
payments.
Phoenix deducts a daily charge for mortality and expense risks from Contract
Values held in the Subaccounts (see "Charges For Mortality and Expense Risks").
Therefore, electing Option K will result in a deduction being made even though
Phoenix assumes no mortality risk under that option.
OPTION A--LIFE ANNUITY WITH SPECIFIED PERIOD CERTAIN
Provides a monthly income for the life of the Annuitant. In the event of
death of the Annuitant, the annuity income will be paid to the beneficiary until
the end of the specified period certain. For example, a ten year period certain
will provide a total of 120 monthly payments. The certain period may be 5, 10 or
20 years.
OPTION B--NON-REFUND LIFE ANNUITY
Provides a monthly income for the lifetime of the Annuitant. No income is
payable after the death of the Annuitant.
OPTION D--JOINT AND SURVIVOR LIFE ANNUITY
Provides a monthly income for the lifetimes of both the Annuitant and a
joint Annuitant as long as either is living. In the event of the death of the
Annuitant or joint Annuitant, the annuity income will continue for the life of
the survivor. The amount to be continued to the survivor may be 100% or 50% of
the amount of the joint annuity payment, as elected at the time the annuity
option is chosen. No income is payable after the death of the survivor
Annuitant.
Under Option D, the joint Annuitant must be named at the time the option is
elected and cannot be changed. The joint Annuitant must have reached an adjusted
age of 40, as defined in the Contract.
OPTION E--INSTALLMENT REFUND LIFE ANNUITY
Provides a monthly income for the life of the Annuitant. In the event of the
Annuitant's death, the annuity income will continue to the Annuitant's
beneficiary until the amount applied to purchase the annuity has been
distributed.
OPTION F--JOINT AND SURVIVOR LIFE ANNUITY WITH SPECIFIED PERIOD CERTAIN
Provides a monthly income for the lifetime of both the Annuitant and a joint
Annuitant as long as either is living. In the event of the death of the
Annuitant or joint Annuitant, the annuity income will continue for the life of
the survivor. If the survivor
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dies prior to the end of the elected period certain, the annuity income will
continue to the named beneficiary until the end of the elected period certain.
For example, a 10-year period certain will provide a total of 120 monthly
payments. A period certain of either 10 or 20 years may be chosen.
Under Option F, the joint annuitant must be named at the time the option is
elected and cannot be changed. The joint annuitant must have reached an adjusted
age of 40, as defined in the Contract.
OPTION G--PAYMENTS FOR SPECIFIED PERIOD
Provides equal income installments for a specified period of years whether
the Annuitant lives or dies. Any specified whole number of years from 5 to 30
years may be elected.
OPTION H--PAYMENTS OF SPECIFIED AMOUNT
Provides equal installments of a specified amount over a period of at least
5 years. The specified amount may not be greater than the total annuity amount
divided by five annual installment payments. If the Annuitant dies prior to the
end of the elected period certain, annuity payments will continue to the
Annuitant's beneficiary until the end of the elected period certain.
OPTION I--VARIABLE PAYMENT LIFE ANNUITY WITH TEN-YEAR PERIOD CERTAIN
Unless another Annuity Option has been elected, this option will
automatically apply to any Contract proceeds payable on the Maturity Date. It
provides a variable payout monthly annuity based on the life of the Annuitant.
In the event of the death of the Annuitant, the annuity payments are made to the
Annuitant's beneficiary until the end of the 10-year period. The 10-year period
provides a total of 120 monthly payments. Payments will vary as to dollar
amount, based on the investment experience of the Subaccounts to which proceeds
are applied.
OPTION J--JOINT SURVIVOR VARIABLE PAYMENT LIFE ANNUITY WITH TEN-YEAR
PERIOD CERTAIN
Provides a variable payout monthly annuity while the Annuitant and the
designated joint Annuitant are living and continues thereafter during the
lifetime of the survivor or, if later, until the end of a 10-year period
certain. Payments will vary as to dollar amount, based on the investment
experience of the Subaccounts to which proceeds are applied. Under Option J, the
joint Annuitant must be named at the time the option is selected and cannot be
changed. The joint Annuitant must have reached an adjusted age of 40 as defined
in the Contract.
OPTION K--VARIABLE PAYMENT ANNUITY FOR A SPECIFIED PERIOD
Provides variable payout monthly income installments for a specified period
of time, whether the Annuitant lives or dies. The period certain specified must
be in whole numbers of years from 5 to 30. However, the period certain selected
by the beneficiary of any death benefit under the Contract may not extend beyond
the life expectancy of such beneficiary. A Contract Owner may request an
unscheduled withdrawal representing part or all of the remaining Contract Value
(less any applicable contingent deferred sales charge) at any time under
Option K.
OTHER OPTIONS AND RATES
Phoenix may offer other annuity options at the Maturity Date of a Contract.
In addition, in the event that current settlement rates for Contracts are more
favorable than the applicable rates guaranteed under the Contract, the current
settlement rates shall be used in determining the amount of any annuity payment
under the Annuity Options above.
OTHER CONDITIONS
Federal income tax requirements currently applicable to most qualified plans
provide that the period of years guaranteed under joint and survivorship
annuities with specified periods certain (see "Option F" and "Option J" above)
cannot be any greater than the joint life expectancies of the payee and his or
her spouse.
Generally, federal income tax requirements also provide that participants in
qualified plans or IRAs must begin minimum distributions by April 1 of the year
following the one in which they attain age 70 1/2. Participants in qualified
plans, other than 5% Owners, may defer distribution until the later of actual
retirement or April 1 of the year following the year they attain age 70 1/2. The
distributions must be such that the full amount in the Contract will be
distributed over a period not greater than the participant's life expectancy, or
the combined life expectancy of the participant and his or her spouse or
designated beneficiary. Distributions made under this method are generally
referred to as Life Expectancy Distributions (LEDs). An LED program is available
to participants in qualified plans or IRAs. Requests to elect this program must
be made in writing.
Under the LED program, regardless of Contract year, amounts up to the
required minimum distribution may be withdrawn without a deduction for sales
charges, even if the minimum distribution exceeds the 10% allowable amount (see
"Sales Charges"). Also, any amounts withdrawn that have not been held under a
Contract for at least six years and are in excess of the greater of the minimum
distribution and the 10% free available amount will be subject to any applicable
sales charge.
PAYMENT UPON DEATH AFTER MATURITY DATE
If an Owner who is also the Annuitant dies on or after the Maturity Date,
except as may be otherwise provided under any supplementary Contract between the
Owner and Phoenix, Phoenix will pay to the Owner's/Annuitant's beneficiary any
annuity payments due during any applicable period certain under the Annuity
Option in effect on the Annuitant's death. If an Owner who is not the Annuitant
dies on or after the Maturity Date, Phoenix will pay any remaining annuity
payments to the Owner's beneficiary according to the payment option in effect at
the time of the Owner's death. If the Annuitant who is not the Owner dies on or
after the Maturity Date, Phoenix will pay any remaining annuity payments to the
Annuitant's beneficiary according to the payment option in effect at the time of
the Annuitant's death.
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VARIABLE ACCOUNT VALUATION PROCEDURES
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VALUATION DATE--A Valuation Date is every day the NYSE is open for trading. The
NYSE is scheduled to be closed for trading on the following days: New Year's
Day, Martin Luther King, Jr. Day, President's Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. The Board of
Directors of the NYSE reserves the right to change this schedule as conditions
warrant. On each Valuation Date, the value of the Separate Account is determined
at the close of the NYSE (currently 4:00 p.m. Eastern Time).
VALUATION PERIOD--A Valuation Period is that period of time from the beginning
of the day following a Valuation Date to the end of the next following Valuation
Date.
ACCUMULATION UNIT VALUE--The value of one Accumulation Unit was set at
$1.0000 on the date assets were first allocated to each Subaccount. The value of
one Accumulation Unit on any subsequent Valuation Date is determined by
multiplying the immediately preceding Accumulation Unit Value by the applicable
net investment factor for the valuation period ending on such Valuation Date.
NET INVESTMENT FACTOR--The net investment factor for any valuation period is
equal to 1.000000 plus the applicable net investment rate for such valuation
period. A net investment factor may be more or less than 1.000000. To determine
the net investment rate for any valuation period for the funds allocated to each
Subaccount, the following steps are taken: (a) the aggregate accrued investment
income and capital gains and losses, realized or unrealized, of the Subaccount
for such valuation period is computed; (b) the amount in (a) is then adjusted by
the sum of the charges and credits for any applicable income taxes and the
deductions at the beginning of the valuation period for mortality and expense
risk charges and daily administrative fee; and (c) the results of (a) as
adjusted by (b) are divided by the aggregate Accumulation Unit Values in the
Subaccount at the beginning of the valuation period.
MISCELLANEOUS PROVISIONS
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ASSIGNMENT
Owners of Contracts issued in connection with nontax-qualified plans may
assign their interest in the Contract without the consent of the beneficiary. A
written notice of such assignment must be filed with VPMO before it will be
honored.
A pledge or assignment of a Contract is treated as payment received on
account of a partial surrender of a Contract (see "Surrenders or Withdrawals
Prior to the Contract Maturity Date").
In order to qualify for favorable tax treatment, Contracts issued in
connection with tax-qualified plans may not be sold, assigned, discounted or
pledged as collateral for a loan or as security for the performance of an
obligation, or for any other purpose, to any person other than Phoenix.
DEFERMENT OF PAYMENT
Payment of the Contract Value in a single sum upon a withdrawal from, or
complete surrender of, a Contract ordinarily will be made within seven days
after receipt of the written request by VPMO. However, payment of the value of
any Accumulation Units may be postponed at times (a) when the NYSE is closed,
other than customary weekend and holiday closings, (b) when trading on the NYSE
is restricted, (c) when an emergency exists as a result of which disposal of
securities in the Fund is not reasonably practicable or it is not reasonably
practicable to determine the value of the Accumulation Units in the Subaccounts
or (d) when a governmental body having jurisdiction over the Account by order
permits such suspension. Rules and regulations of the SEC, if any, are
applicable and will govern as to whether conditions described in (b), (c) or (d)
exist.
FREE LOOK PERIOD
Phoenix may mail the Contract to the Owner or it may be delivered in person.
An Owner may return a Contract for any reason within 10 days after its receipt
and receive in cash the adjusted value of the initial purchase payment. (A
longer free look period may be provided in the Contract Owner's state). The
Owner may receive more or less than the initial payment depending on investment
experience within the Subaccount during the free look period, unless the
Contract was issued with a Temporary Money Market Allocation Amendment, in which
case the initial purchase payment will be refunded.
If the Contract Owner elects on the application to have the Temporary Money
Market Allocation Amendment issued with the Contract, or resides in a state that
requires the Contract to be issued with the Temporary Money Market Allocation
Amendment, Phoenix temporarily allocates the initial purchase payment to the
Money Market Subaccount. Under this Amendment, if the Contract Owner surrenders
the Contract during the free look period, the initial purchase payment is
refunded. At the expiration of the free look period, the value of the
Accumulation Units held in the Money Market Subaccount is allocated among the
available Subaccounts of the Account or the GIA in accordance with the Contract
Owner's allocation instructions on the application.
If the initial purchase payment, or any portion thereof, was allocated to
the GIA, that payment (or portion) and any earned interest is refunded.
AMENDMENTS TO CONTRACTS
Contracts may be amended to conform to changes in applicable law or
interpretations of applicable law, or to accommodate design changes. Changes in
the Contract may need to be approved by Contract Owners and/or state insurance
departments. A change in the Contract which necessitates a corresponding change
in the Prospectus or the SAI must be filed with the SEC.
SUBSTITUTION OF FUND SHARES
Although Phoenix believes it to be unlikely, it is possible that in the
judgment of its management, one or more of the Series of
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the Funds may become unsuitable for investment by Contract Owners because of
a change in investment policy, or a change in the tax laws, or because the
shares are no longer available for investment. In that event, Phoenix may seek
to substitute the shares of another Series or the shares of an entirely
different mutual fund. Before this can be done, the approval of the SEC, and
possibly one or more state insurance departments, will be required.
OWNERSHIP OF THE CONTRACT
Ordinarily, the purchaser of a Contract is both the Owner and the Annuitant
and is entitled to exercise all the rights under the Contract. However, the
Owner may be an individual or entity other than the Annuitant. Spouses may own a
Contract as joint Owners. Transfer of the ownership of a Contract may involve
federal income tax consequences, and a qualified adviser should be consulted
before any such transfer is attempted.
FEDERAL INCOME TAXES
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INTRODUCTION
The Contracts are designed for use by individuals in retirement plans which
may or may not be tax-qualified plans ("Qualified Plans") under the provisions
of the Internal Revenue Code of 1986, as amended (the "Code"). The ultimate
effect of federal income taxes on the amounts held under a Contract, on annuity
payments and on the economic benefits of the Contract Owner, Annuitant or
beneficiary depends on Phoenix's tax status, on the type of retirement plan for
which the Contract is purchased and upon the tax and employment status of the
individual concerned.
The following discussion is general in nature and is not intended as tax
advice. Each person concerned should consult a competent tax adviser. No attempt
is made to consider any estate or inheritance taxes or any applicable state,
local or other tax laws. Moreover, the discussion is based upon Phoenix's
understanding of the federal income tax laws as they are currently interpreted.
No representation is made regarding the likelihood of continuation of the
federal income tax laws or the current interpretations by the Internal Revenue
Service ("IRS"). Phoenix does not guarantee the tax status of the Contracts.
Purchasers bear the complete risk that the Contracts may not be treated as
"annuity contracts" under federal income tax laws. For a discussion of federal
income taxes as they relate to the Funds, please see the accompanying
prospectuses for the Funds.
TAX STATUS
Phoenix is taxed as a life insurance company under Part I of Subchapter L of
the Code. Since the Account is not a separate entity from Phoenix and its
operations form a part of Phoenix, it will not be taxed separately as a
"regulated investment company" under Subchapter M of the Code. Investment income
and realized capital gains on the assets of the Account are reinvested and taken
into account in determining the Contract Value. Under existing federal income
tax law, the Account's investment income, including realized net capital gains,
is not taxed to Phoenix. Phoenix reserves the right to make a deduction for
taxes should they be imposed with respect to such items in the future.
TAXATION OF ANNUITIES IN GENERAL
Section 72 of the Code governs taxation of annuities. In general, a Contract
Owner is not taxed on increases in value of the units held under a Contract
until some form of distribution is made under the Contract. However, in certain
cases, the increase in value may be subject to tax currently. In the case of
Contracts not owned by natural persons, see "Contracts Owned By Nonnatural
Persons." In the case of Contracts not meeting the diversification requirements,
see "Diversification Standards."
1. SURRENDERS OR WITHDRAWALS PRIOR TO THE CONTRACT MATURITY DATE.
Code Section 72 provides that a total or partial surrender from a
Contract prior to the Contract Maturity Date will be treated as taxable
income to the extent the amounts held under the Contract exceed the
"investment in the Contract." The "investment in the Contract" is that
portion, if any, of purchase payments (premiums paid) by or on behalf of an
individual under a Contract that is not excluded from the individual's gross
income. However, under certain types of Qualified Plans there may be no
investment in the Contract within the meaning of Code Section 72, so that
the total amount of all payments received will be taxable to the Contract
Owner. The taxable portion is taxed as ordinary income in an amount equal to
the value of the Contract or portion thereof that is pledged or assigned.
For purposes of this rule, a pledge or assignment of a Contract is treated
as a payment received on account of a partial surrender of a Contract.
2. SURRENDERS OR WITHDRAWALS ON OR AFTER THE CONTRACT MATURITY DATE.
Upon receipt of a lump sum payment or an annuity payment under the
Contract, the recipient is taxed on the portion of the payment that exceeds
the investment in the Contract. Ordinarily, such taxable portion is taxed as
ordinary income. Under certain circumstances, the proceeds of a surrender of
a Contract may qualify for "lump sum distribution" treatment under Qualified
Plans. See your tax adviser if you think you may qualify for "lump sum
distribution" treatment. The 5-year averaging rule for lump sum distribution
has been repealed for tax years beginning after 1999.
For fixed annuity payments, the taxable portion of each payment is
determined by using a formula known as the "exclusion ratio," which
establishes the ratio that the investment in the Contract bears to the total
expected amount of annuity payments for the term of the Contract. That ratio
is then applied to each payment to determine the nontaxable portion of the
payment. The remaining portion of each payment is taxed as ordinary income.
For variable annuity payments, the taxable portion is determined by a
formula that establishes a specific dollar amount of each payment that is
not taxed. The dollar amount is determined by dividing the investment in the
Contract by the total number of expected periodic payments. The remaining
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portion of each payment is taxed as ordinary income. Once the excludable
portion of annuity payments equals the investment in the Contract, the
balance of the annuity payments will be fully taxable. For certain types of
qualified plans, there may be no investment in the Contract resulting in the
full amount of the payments being taxable. A simplified method of
determining the exclusion ratio is effective with respect to qualified plan
annuities starting after November 18, 1996.
Withholding of federal income taxes on all distributions may be required
unless the recipient elects not to have any amounts withheld and properly
notifies VPO of that election.
3. PENALTY TAX ON CERTAIN SURRENDERS AND WITHDRAWALS.
With respect to amounts surrendered or distributed before the taxpayer
reaches age 59 1/2, a penalty tax is imposed equal to ten percent (10%) of
the portion of such amount that is includable in gross income. However, the
penalty tax will not apply to withdrawals: (i) made on or after the death of
the Contract Owner (or where the Contract Owner is not an individual, the
death of the "Primary Annuitant," who is defined as the individual the
events in whose life are of primary importance in affecting the timing and
amount of the payout under the Contract); (ii) attributable to the
taxpayer's becoming totally disabled within the meaning of Code Section
72(m)(7); (iii) which are part of a series of substantially equal periodic
payments made (not less frequently than annually) for the life (or life
expectancy) of the taxpayer, or the joint lives (or joint life expectancies)
of the taxpayer and his beneficiary; (iv) from certain qualified plans (such
distributions may, however, be subject to a similar penalty under Code
Section 72(t) relating to distributions from qualified retirement plans and
to a special 25% penalty applicable specifically to SIMPLE IRAs); (v)
allocable to investment in the contract before August 14, 1982; (vi) under a
qualified funding asset (as defined in Code Sec. 130(d)); (vii) under an
immediate annuity contract (as defined in Code Section 72(u)(4)); or (viii)
that are purchased by an employer on termination of certain types of
qualified plans and which are held by the employer until the employee
separates from service.
If the penalty tax does not apply to a withdrawal as a result of the
application of item (iii) above, and the series of payments are subsequently
modified (other than by reason of death or disability), the tax for the
first year when the modification occurs will be increased by an amount
(determined by the Treasury regulations) equal to the tax that would have
been imposed but for item (iii) above, plus interest for the deferral
period, but only if the modification takes place: (a) before the close of
the period which is 5 years from the date of the first payment and after the
taxpayer attains age 59 1/2, or (b) before the taxpayer reaches age 59 1/2.
Separate tax withdrawal penalties apply to qualified contracts. (See
"Penalty Tax on Surrenders and Withdrawals from Qualified Contracts.")
ADDITIONAL CONSIDERATIONS
1. DISTRIBUTION-AT-DEATH RULES.
In order to be treated as an annuity Contract, for federal income tax
purposes, a Contract must provide the following two distribution rules: (A)
if the Contract Owner dies on or after the Contract Maturity Date, and
before the entire interest in the Contract has been distributed, the
remainder of the Contract Owner's interest will be distributed at least as
quickly as the method in effect on the Contract Owner's death; and (B) if a
Contract Owner dies before the Contract Maturity Date, the Contract Owner's
entire interest generally must be distributed within five (5) years after
the date of death, or if payable to a designated beneficiary may be
annuitized over the life of that beneficiary or over a period not extending
beyond the life expectancy of that beneficiary, and must commence within one
(1) year after the Contract Owner's date of death. If the beneficiary is the
spouse of the Contract Owner, the Contract (together with the deferral of
tax on the accrued and future income thereunder) may be continued in the
name of the spouse as Contract Owner. Similar distribution requirements
apply to annuity Contracts under Qualified Plans (other than Code Section
457 Plans). However, a number of restrictions, limitations and special rules
apply to qualified plans and a Contract Owner should consult with a tax
adviser.
If the Annuitant, who is not the Contract Owner, dies before the Maturity
Date and there is no contingent Annuitant, the Annuitant's beneficiary must
elect within 60 days whether to receive the death benefit in a lump sum or
in periodic payments commencing within one (1) year.
If the Contract Owner is not an individual, the death of the primary
Annuitant is treated as the death of the Contract Owner. In addition, when
the Contract Owner is not an individual, a change in the primary Annuitant
is treated as the death of the Contract Owner. Finally, in the case of
nonspousal joint Contract Owners, the distribution will be required at the
first death of the Contract Owners.
If the Contract Owner or a joint Contract Owner dies on or after the
Maturity Date, the remaining payments if any, under the Annuity Option
selected will be made at least as rapidly as under the method distribution
in effect at the time of death.
2. TRANSFER OF ANNUITY CONTRACTS.
Transfers of nonqualified Contracts prior to the Maturity Date for less
than full and adequate consideration to the Contract Owner at the time of
such transfer, will trigger tax on the gain in the Contract with the
transferee getting a step-up in basis for the amount included in the
Contract Owner's income. This provision does not apply to transfers between
spouses or incident to a divorce.
3. CONTRACTS OWNED BY NONNATURAL PERSONS.
If the Contract is held by a nonnatural person (for example, a
corporation), the income on that Contract (generally the increase in the net
surrender value less the premium paid) is includable in income each year.
The rule does not apply where the nonnatural person is the nominal
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<PAGE>
owner of a Contract and the beneficial owner is a natural person. The rule
also does not apply where the annuity contract is acquired by the estate of
a decedent, where the Contract is held under a qualified plan, a TSA program
or an IRA, where the Contract is a qualified funding asset for structured
settlements, where the Contract is purchased on behalf of an employee upon
termination of a qualified plan and in the case of an immediate annuity.
4. SECTION 1035 EXCHANGES.
Code Section 1035 provides, in general, that no gain or loss shall be
recognized on the exchange of one annuity Contract for another. A
replacement Contract obtained in a tax-free exchange of Contracts succeeds
to the status of the surrendered Contract. If the surrendered Contract was
issued prior to August 14, 1982, the tax rules that formerly provided that
the surrender was taxable only to the extent the amount received exceeds
the Contract Owner's investment in the Contract, will continue to apply. In
contrast, Contracts issued on or after January 19, 1985, in a Code Section
1035 exchange, are treated as new Contracts for purposes of the
distribution-at-death rules. Special rules and procedures apply to Code
Section 1035 transactions. Prospective Contract Owners wishing to take
advantage of Code Section 1035 should consult their tax advisers.
5. MULTIPLE CONTRACTS
Code Section 72(e)(11)(A)(ii) provides that for Contracts entered into
after October 21, 1988, for purposes of determining the amount of any
distribution under Code Section 72(e) (amounts not received as annuities)
that is includable in gross income, all nonqualified deferred annuity
contracts issued by the same insurer (or affiliate) to the same Contract
Owner during any calendar year are to be aggregated and treated as one
contract. Thus, any amount received under any such contract prior to the
Contract Maturity Date, such as a withdrawal, dividend or loan, will be
taxable (and possibly subject to the 10% penalty tax) to the extent of the
combined income in all such contracts.
The Treasury Department has specific authority to issue regulations that
prevent the avoidance of Code Section 72(e) through the serial purchase of
annuity contracts or otherwise. In addition, there may be situations where
the Treasury may conclude that it would be appropriate to aggregate two or
more contracts purchased by the same Contract Owner. Accordingly, a
Contract Owner should consult a competent tax adviser before purchasing
more than one Contract or other annuity contracts.
DIVERSIFICATION STANDARDS
1. DIVERSIFICATION REGULATIONS.
To comply with the diversification regulations under Code Section 817(h)
("Diversification Regulations"), after a start-up period, each Series of
the Funds will be 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 assets of
each of the Funds 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 Fund as an asset of the Account, and each Series of the
Fund is tested for compliance with the percentage limitations. All
securities of the same issuer are treated as a single investment. As a
result of the 1988 Act, each government agency or instrumentality will be
treated as a separate issuer for purposes of these limitations.
The Treasury Department has indicated that the Diversification
Regulations do not provide guidance regarding the circumstances in which
Contract Owner control of the investments of the Account will cause the
Contract Owner to be treated as the owner of the assets of the Account,
thereby resulting in the loss of favorable tax treatment for the Contract.
At this time, it cannot be determined whether additional guidance will be
provided and what standards may be contained in such guidance. The amount
of Contract Owner control which may be exercised under the Contract is
different in some respects from the situations addressed in published
rulings issued by the IRS in which was held that the policyowner was not
the Owner of the assets of the separate account. It is unknown whether
these differences, such as the Contract Owner's ability to transfer among
investment choices or the number and type of investment choices available,
would cause the Contract Owner to be considered as the owner of the assets
of the Account resulting in the imposition of federal income tax to the
Contract Owner with respect to earnings allocable to the Contract prior to
receipt of payments under the Contract.
In the event any forthcoming guidance or ruling is considered to set
forth a new position, such guidance or ruling generally will be applied
only prospectively. However, if such ruling or guidance was not considered
to set forth a new position, it may be applied retroactively resulting in
the Contract Owner being retroactively determined to be the owner of the
assets of the Account.
Due to the uncertainty in this area, Phoenix reserves the right to
modify the Contract in an attempt to maintain favorable tax treatment.
Phoenix has represented that it intends to comply with the
Diversification Regulations to assure that the Contracts continue to be
treated as annuity contracts for federal income tax purposes.
2. DIVERSIFICATION REGULATIONS AND QUALIFIED PLANS.
Code Section 817(h) applies to a variable annuity contract other than a
pension plan contract. The Diversification Regulations reiterate that the
diversification requirements do not apply to a pension plan contract. All
of the qualified plans (described below) are defined as pension plan
contracts for these purposes. Notwithstanding the exception of qualified
plan contracts from application of the diversification rules, the
investments of the Phoenix qualified plan Contracts (i.e., the Funds) will
be structured
20
<PAGE>
to comply with the diversification standards because the Funds serve as
the investment vehicle for nonqualified Contracts as well as qualified
plan Contracts.
QUALIFIED PLANS
The Contracts may be used with several types of Qualified Plans. TSAs,
Keoghs, IRAs, Corporate Pension and Profit-Sharing Plans and State Deferred
Compensation plans will be treated, for purposes of this discussion, as
Qualified Plans. The tax rules applicable to participants in such Qualified
Plans vary according to the type of plan and the terms and conditions of the
plan itself. No attempt is made herein to provide more than general information
about the use of the Contracts with the various types of Qualified Plans.
Participants under such Qualified Plans as well as Contract Owners, Annuitants
and beneficiaries, are cautioned that the rights of any person to any benefits
under such Qualified Plans may be subject to the terms and conditions of the
plans themselves or limited by applicable law, regardless of the terms and
conditions of the Contract issued in connection therewith. For example, Phoenix
will accept beneficiary designations and payment instructions under the terms of
the Contract without regard to any spousal consents that may be required under
the Retirement Equity Act (REA). Consequently, a Contract Owner's beneficiary
designation or elected payment option may not be enforceable.
Effective January 1, 1993, Section 3405 of the Code was amended to change
the rollover rules applicable to the taxable portions of distributions from
qualified pension and profit-sharing plans and Section 403(b) Tax-Sheltered
Annuities arrangements. Taxable distributions eligible to be rolled over
generally will be subject to 20% income tax withholding. Mandatory withholding
can only be avoided if the employee arranges for a direct rollover to another
qualified pension or profit-sharing plan or to an IRA.
The new mandatory withholding rules apply to all taxable distributions from
Qualified Plans or TSAs but not IRAs, except a) distributions required under the
Code; b) substantially equal distributions made over the life (or life
expectancy) of the employee, or for a term certain of 10 years or more; and (c)
the portion of distributions not includable in gross income (i.e., return of
after tax contributions).
On July 6, 1983, the Supreme Court decided in ARIZONA GOVERNING COMMITTEE V.
NORRIS that optional annuity benefits provided under an employer's deferred
compensation plan could not, under Title VII of the Civil Rights Act of 1964,
vary between men and women. The Contracts sold by Phoenix in connection with
certain Qualified Plans will utilize annuity tables which do not differentiate
on the basis of sex. Such annuity tables will also be available for use in
connection with certain nonqualified deferred compensation plans.
Numerous changes have been made to the tax rules governing Qualified Plans
as a result of tax legislation enacted during the last several years including
rules with respect to: maximum contributions; minimum, maximum and timing of
distributions; antidiscrimination; and increasing the penalty tax on premature
distributions. The following are brief descriptions of the various types of
Qualified Plans and of the use of the Contracts in connection therewith.
1. TAX-SHELTERED ANNUITIES.
Code Section 403(b) permits public school systems and certain types of
charitable, educational and scientific organizations, generally specified in
Code Section 501(c)(3) to purchase annuity contracts on behalf of their
employees and, subject to certain limitations, allows employees of those
organizations to exclude the amount of purchase payments from gross income
for federal income tax purposes. These annuity contracts are commonly
referred to as TSAs.
For taxable years beginning after December 31, 1988, Code Section
403(b)(11) imposes certain restrictions on a Contract Owner's ability to
make partial withdrawals from, or surrenders of, Code Section 403(b)
Contracts, if the cash withdrawn is attributable to purchase payments made
under a salary reduction agreement. Specifically, Code Section 403(b)(11)
allows a Contract Owner to make a surrender or partial withdrawal only (A)
when the employee attains age 59 1/2, separates from service, dies, or
becomes disabled (as defined in the Code), or (B) in the case of hardship.
In the case of hardship, the amount distributable cannot include any income
earned under the Contract.
The 1988 Act amended the effective date of Code Section 403(b)(11), so
that it applies only with respect to distributions from Code Section 403(b)
Contracts which are attributable to assets other than assets held as of the
close of the last year beginning before January 1, 1989. Thus, the
distribution restrictions do not apply to assets held as of December 31,
1988.
In addition, in order for certain types of contributions under a Code
Section 403(b) Contract to be excluded from taxable income, the employer
must comply with certain nondiscrimination requirements. Contract Owners
should consult their employers to determine whether the employer has
complied with these rules. Contract Owner loans are not allowed under the
Contracts.
2. KEOGH PLANS.
The Self-Employed Individual Tax Retirement Act of 1962, as amended,
permits self-employed individuals to establish "Keoghs," or qualified plans
for themselves and their employees. The tax consequences to participants
under such a plan depend upon the terms of the plan. In addition, such plans
are limited by law with respect to the maximum permissible contributions,
distribution dates, nonforfeitability of interests and tax rates applicable
to distributions. In order to establish such a plan, a plan document must be
adopted and implemented by the employer, as well as approved by the IRS.
3. INDIVIDUAL RETIREMENT ACCOUNTS.
Code Section 408 permits eligible individuals to contribute to an
individual retirement program known as an "IRA." These IRAs are subject to
limitations on the amount which may be contributed, the persons who may be
eligible and on the time when distributions may commence. In
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<PAGE>
addition, distributions from certain other types of qualified plans may be
placed on a tax-deferred basis into an IRA. Effective January 1, 1997,
employers may establish a new type of IRA called SIMPLE (Savings Incentive
Match Plan for Employees). Special rules apply to participants contributions
to and withdrawals from SIMPLE IRAs. Also effective January 1, 1997, salary
reduction IRAs (SARSEP) no longer may be established.
4. CORPORATE PENSION AND PROFIT-SHARING PLANS.
Code Section 401(a) permits corporate employers to establish various
types of retirement plans for employees. Such retirement plans may permit
the purchase of Contracts to provide benefits thereunder.
These retirement plans may permit the purchase of the Contracts to
provide benefits under the plan. Contributions to the plan for the benefit
of employees will not be includable in the gross income of the employee
until distributed from the plan. The tax consequences to participants may
vary, depending upon the particular plan design. However, the Code places
limitations and restrictions on all plans, including on such items as:
amount of allowable contributions; form, manner and timing of distributions;
transferability of benefits; vesting and nonforfeitability of interests;
nondiscrimination in eligibility and participation; and the tax treatment of
distributions, withdrawals and surrenders. Participant loans are not allowed
under the Contracts purchased in connection with these Plans. Purchasers of
Contracts for use with corporate pension or profit-sharing plans should
obtain competent tax advice as to the tax treatment and suitability of such
an investment.
5. DEFERRED COMPENSATION PLANS WITH RESPECT TO SERVICE FOR STATE AND LOCAL
GOVERNMENTS AND TAX-EXEMPT ORGANIZATIONS.
Code Section 457 provides for certain deferred compensation plans with
respect to service for state and local governments and certain other
entities. The Contracts may be used in connection with these plans; however,
under these plans if issued to tax-exempt organizations the Contract Owner
is the plan sponsor, and the individual participants in the plans are the
Annuitants. Under such Contracts, the rights of individual plan participants
are governed solely by their agreements with the plan sponsor and not by the
terms of the Contracts. Effective in 1997 for new state and local government
plans, such plans must be funded through a tax-exempt annuity contract held
for the exclusive benefit of plan participants.
6. PENALTY TAX ON CERTAIN SURRENDERS AND WITHDRAWALS FROM QUALIFIED
CONTRACTS.
In the case of a withdrawal under a qualified contract, a ratable
portion of the amount received is taxable, generally based on the ratio of
the individual's cost basis to the individual's total accrued benefit under
the retirement plan. Special tax rules may be available for certain
distributions from a qualified contract. Section 72(t) of the Code imposes a
10% penalty tax on the taxable portion of any distribution from qualified
retirement plans, including Contracts issued and qualified under Code
Sections 401 (Keogh and Corporate Pension and Profit-Sharing Plans), TSAs
and IRAs. The penalty is increased to 25% instead of 10% for SIMPLE IRAs if
distribution occurs within the first two years of the Contract Owner's
participation in the SIMPLE IRA. To the extent amounts are not includable in
gross income because they have been properly rolled over to an IRA or to
another eligible qualified plan, no tax penalty will be imposed. The tax
penalty will not apply to the following distributions: (a) if distribution
is made on or after the date on which the Contract Owner or Annuitant (as
applicable) reaches age 59 1/2; (b) distributions following the death or
disability of the Contract Owner or Annuitant (as applicable) (for this
purpose disability is as defined in Section 72(m)(7) of the Code); (c) after
separation from service, distributions that are part of substantially equal
periodic payments made not less frequently than annually for the life (or
life expectancy) of the Contract Owner or Annuitant (as applicable) or the
joint lives (or joint life expectancies) of such Contract Owner or Annuitant
(as applicable) and his or her designated beneficiary; (d) distributions to
a Contract Owner or Annuitant (as applicable) who has separated from service
after he has attained age 55; (e) distributions made to the Contract Owner
or Annuitant (as applicable) to the extent such distributions do not exceed
the amount allowable as a deduction under Code Section 213 to the Contract
Owner or Annuitant (as applicable) for amounts paid during the taxable year
for medical care; (f) distributions made to an alternate payee pursuant to a
qualified domestic relations order; and (g) distributions from an IRA for
the purchase of medical insurance (as described in Section 213(d)(1)(D) of
the Code) for the Contract Owner and his or her spouse and dependents if the
Contract Owner has received unemployment compensation for at least 12 weeks.
This exception will no longer apply after the Contract Owner has been
reemployed for at least 60 days. The exceptions stated in items (d) and (f)
above do not apply in the case of an IRA. The exception stated in item (c)
applies to an IRA without the requirement that there be a separation from
service.
Generally, distributions from a qualified plan must commence no later
than April 1 of the calendar year following the later of: (a) the year in
which the employee attains age 70 1/2 or (b) the calendar year in which the
employee retires. The date set forth in (b) does not apply to an Individual
Retirement Annuity. Required distributions must be over a period not
exceeding the life expectancy of the individual or the joint lives or life
expectancies of the individual and his or her designated beneficiary. If the
required minimum distributions are not made, a 50% penalty tax is imposed as
to the amount not distributed.
7. SEEK TAX ADVICE
The above description of federal income tax consequences of the
different types of qualified plans which may be funded by the Contracts
offered by this Prospectus is only a brief summary and is not intended as
tax advice. The rules governing the provisions of qualified plans are
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<PAGE>
extremely complex and often difficult to comprehend. Anything less than full
compliance with the applicable rules, all of which are subject to change,
may have adverse tax consequences. A prospective Contract Owner considering
adoption of a qualified plan and purchase of a Contract in connection
therewith should first consult a qualified and competent tax adviser, with
regard to the suitability of the Contract as an investment vehicle for the
qualified plan.
SALES OF VARIABLE ACCUMULATION CONTRACTS
- --------------------------------------------------------------------------------
The master servicer and distributor of the Contracts is W.S. Griffith & Co.,
Inc. ("WSG"). WSG is an indirect wholly-owned subsidiary of Phoenix. Contracts
are sold through broker-dealers registered under the Securities Exchange Act of
1934, whose representatives are authorized by applicable law to sell Contracts
under terms of agreement with WSG and terms of agreement provided by Phoenix.
For services it renders, Phoenix pays WSG or such other person if required under
applicable law, an amount equal to 5.25% of the purchase payments under the
Contracts. Phoenix, through WSG or such other person, generally pays dealers who
sell Contracts an amount equal to 5% of the purchase payments under the
Contracts. The amounts paid by Phoenix are not deducted from the purchase
payments. Deductions for sales charges (as described under "Sales Charges") may
be used to reimburse Phoenix for commission payments to broker-dealers.
STATE REGULATION
- --------------------------------------------------------------------------------
Phoenix is subject to the provisions of the New York insurance laws
applicable to mutual life insurance companies and to regulation and supervision
by the New York Superintendent of Insurance. Phoenix also is subject to the
applicable insurance laws of all the other states and jurisdictions in which it
does an insurance business.
State regulation of Phoenix includes certain limitations on the investments
which may be made for its General Account and separate accounts, including the
Account. It does not include, however, any supervision over the investment
policy of the Account.
REPORTS
- --------------------------------------------------------------------------------
Reports showing the Contract Value and containing the financial statements
of the Account will be furnished at least annually to an Owner.
VOTING RIGHTS
- --------------------------------------------------------------------------------
As stated above, all of the assets held in an available Subaccount will be
invested in shares of a corresponding Series of the Funds. Phoenix is the legal
owner of those shares and as such has the right to vote to elect the Board of
Trustees of the Funds, to vote upon certain matters that are required by the
1940 Act to be approved or ratified by the shareholders of a mutual fund and to
vote upon any other matter that may be voted upon at a shareholders' meeting.
However, Phoenix intends to vote the shares of the Funds at regular and special
meetings of the shareholders of the Funds in accordance with instructions
received from Owners of the Contracts.
Phoenix currently intends to vote Fund shares attributable to any Phoenix
assets and Fund shares held in each Subaccount for which no timely instructions
from Owners are received in the same proportion as those shares in that
Subaccount for which instructions are received. In the future, to the extent
applicable federal securities laws or regulations permit Phoenix to vote some or
all shares of the Funds in its own right, it may elect to do so.
Matters on which Owners may give voting instructions may include the
following: (1) election of the Board of Trustees of the Funds; (2) ratification
of the independent accountant for the Funds; (3) approval or amendment of the
investment advisory agreements for the Series of the Funds corresponding to the
Owner's selected Subaccount(s); (4) any change in the fundamental investment
policies or restrictions of each such Series; and (5) any other matter requiring
a vote of the Shareholders of the Funds. With respect to amendment of any
investment advisory agreement or any change in a Series' fundamental investment
policy, Owners participating in such Series will vote separately on the matter,
pursuant to the requirements of the 1940 Act.
The number of votes that a Contract Owner has the right to cast will be
determined by applying the Contract Owner's percentage interest in a Subaccount
to the total number of votes attributable to the Subaccount. In determining the
number of votes, fractional shares will be recognized. The number of votes for
which each Owner may give Phoenix instructions will be determined as of the
record date for Fund shareholders chosen by the Board of Trustees of the Funds.
Phoenix will furnish Owners with proper forms and proxies to enable them to give
these instructions.
TEXAS OPTIONAL RETIREMENT PROGRAM
- --------------------------------------------------------------------------------
Participants in the Texas Optional Retirement Program may not receive the
proceeds of a withdrawal from, or complete surrender of, a Contract, or apply
them to provide annuity options prior to retirement except in the case of
termination of employment in the Texas public institutions of higher education,
death or total disability. Such proceeds, however, may be used to fund another
eligible retirement vehicle.
LITIGATION
- --------------------------------------------------------------------------------
Phoenix, the Account and WSG are not parties to any litigation that would
have a material adverse effect upon the Account or the Contracts.
LEGAL MATTERS
- --------------------------------------------------------------------------------
Edwin L. Kerr, Counsel, Phoenix has provided advice on certain matters
relating to the federal securities and income tax laws in connection to the
Contracts described in this Prospectus.
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<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
The SAI contains more specific information and financial statements relating
to the Account and Phoenix. The "Table of Contents" of the SAI is set forth
below:
Underwriter
Calculation of Yield and Return
Calculation of Annuity Payments
Experts
Financial Statements
Contract Owner inquiries and requests for a SAI should be directed to
Phoenix Variable Products Mail Operations in writing at P.O. Box 8027, Boston,
Massachusetts 02266-8027, or by calling VPO at (800) 243-4840.
24
<PAGE>
APPENDIX A
THE GUARANTEED INTEREST ACCOUNT
Contributions to the GIA under the Contract and transfers to the GIA become
part of the general account of Phoenix (the "General Account"), which supports
insurance and annuity obligations. Because of exemptive and exclusionary
provisions, interest in the General Account has not been registered under the
Securities Act of 1933 ("1933 Act") nor is the General Account registered as an
investment company under the 1940 Act. Accordingly, neither the General Account
nor any interest therein is specifically subject to the provisions of the 1933
or 1940 Acts and the staff of the SEC has not reviewed the disclosures in this
Prospectus concerning the GIA. Disclosures regarding the GIA and the General
Account, however, may be subject to certain generally applicable provisions of
the federal securities laws relating to the accuracy and completeness of
statements made in prospectuses.
The General Account is made up of all of the general assets of Phoenix other
than those allocated to any separate account. Purchase payments will be
allocated to the GIA and, therefore, the General Account, as elected by the
Owner at the time of purchase or as subsequently changed. Phoenix will invest
the assets of the General Account in assets chosen by it and allowed by
applicable law. Investment income from General Account assets is allocated
between Phoenix and the contracts participating in the General Account, in
accordance with the terms of such contracts.
Fixed annuity payments made to Annuitants under the Contract will not be
affected by the mortality experience (death rate) of persons receiving such
payments or of the general population. Phoenix assumes this "mortality risk" by
virtue of annuity rates incorporated in the Contract that cannot be changed. In
addition, Phoenix guarantees that it will not increase charges for maintenance
of the Contracts regardless of its actual expenses.
Investment income from the General Account allocated to Phoenix includes
compensation for mortality and expense risks borne by it in connection with
General Account contracts.
The amount of investment income allocated to the Contracts will vary from
year to year in the sole discretion of Phoenix. However, Phoenix guarantees that
it will credit interest at a rate of not less than 4% per year, compounded
annually, to amounts allocated to the GIA. Phoenix may credit interest at a rate
in excess of 4% per year; however, it is not obligated to credit any interest in
excess of 4% per year.
Biweekly, Phoenix will set the excess interest rate, if any, that will apply
to amounts deposited to the GIA. That rate will remain in effect for such
deposits for an initial guarantee period of one full year from the date of
deposit. Upon expiration of the initial one-year guarantee period (and each
subsequent one-year guarantee period thereafter), the rate to be applied to any
deposits whose guaranteed period has just ended will be the same rate as is
applied to new deposits allocated to the GIA at that time. This rate will
likewise remain in effect for a guarantee period of one full year from the date
the new rate is applied.
Excess interest, if any, will be determined by Phoenix based on information
as to expected investment yields. Some of the factors that Phoenix may consider
in determining whether to credit excess interest to amounts allocated to the GIA
and the amount thereof, are general economic trends, rates of return currently
available and anticipated on investments, regulatory and tax requirements and
competitive factors. ANY INTEREST CREDITED TO AMOUNTS ALLOCATED TO THE GIA IN
EXCESS OF 4% PER YEAR WILL BE DETERMINED IN THE SOLE DISCRETION OF PHOENIX AND
WITHOUT REGARD TO ANY SPECIFIC FORMULA. THE CONTRACT OWNER ASSUMES THE RISK THAT
INTEREST CREDITED TO GIA ALLOCATIONS MAY NOT EXCEED THE MINIMUM GUARANTEE OF 4%
FOR ANY GIVEN YEAR.
Phoenix is aware of no statutory limitations on the maximum amount of
interest it may credit, and the Board of Directors has set no limitations.
However, inherent in Phoenix's exercise of discretion in this regard is the
equitable allocation of distributable earnings and surplus among its various
policyholders and Contract Owners.
Excess interest, if any, will be credited on the GIA Contract Value. Phoenix
guarantees that, at any time, the GIA Contract Value will not be less than the
amount of purchase payments allocated to the GIA, plus interest at the rate of
4% per year, compounded annually, plus any additional interest which Phoenix
may, in its discretion, credit to the GIA, less the sum of all annual
administrative or surrender charges, any applicable premium taxes, and less any
amounts surrendered. If the Owner surrenders the Contract, the amount available
from the GIA will be reduced by any applicable surrender charge and annual
administration charge (see "Deductions and Charges").
IN GENERAL, ONE TRANSFER PER CONTRACT YEAR IS ALLOWED FROM THE GIA. THE AMOUNT
WHICH CAN BE TRANSFERRED IS LIMITED TO THE GREATER OF $1,000 OR 25% OF THE
CONTRACT VALUE IN THE GIA AT THE TIME OF THE TRANSFER. UNDER THE SYSTEMATIC
TRANSFER PROGRAM, TRANSFERS OF APPROXIMATELY EQUAL AMOUNTS MAY BE MADE OVER A
MINIMUM 18-MONTH PERIOD. NONSYSTEMATIC TRANSFERS FROM THE GIA WILL BE
EFFECTUATED ON THE DATE OF RECEIPT BY VPMO, UNLESS OTHERWISE REQUESTED BY THE
CONTRACT OWNER.
25
<PAGE>
APPENDIX B
DEDUCTIONS FOR STATE PREMIUM TAXES
QUALIFIED AND NONQUALIFIED ANNUITY CONTRACTS
<TABLE>
<CAPTION>
UPON UPON NON-
STATE PURCHASE(1) ANNUITIZATION QUALIFIED QUALIFIED
----- ----------- ------------- --------- ---------
<S> <C> <C> <C> <C>
California.............................. X 2.35% 0.50%
D.C. ................................... X 2.25 2.25
Kansas.................................. X 2.00
Kentucky................................ X 2.00 2.00
Maine................................... X 2.00
Nevada.................................. X 3.50
South Dakota............................ X 1.25
West Virginia........................... X 1.00 1.00
Wyoming................................. X 1.00
</TABLE>
NOTE: The above premium tax deduction rates are as of January 1, 1998. No
premium tax deductions are made for states not listed above. However,
premium tax statutes are subject to amendment by legislative act and to
judicial and administrative interpretation, which may affect both the
above list of states and the applicable tax rates. Consequently, the
company reserves the right to deduct premium tax when necessary to
reflect changes in state tax laws or interpretations.
For an explanation of the assessment of premium taxes see "Deductions
and Charges--Premium Tax."
1 "Purchase" in this chart refers to the earlier of partial withdrawal,
surrender of the Contract, payment of death proceeds or Maturity Date.
26
