[VERSION A]
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. 800/447-4312
VARIABLE ACCUMULATION DEFERRED ANNUITY CONTRACTS
PROSPECTUS
May 1, 1998
As Supplemented November 2, 1998 and February 1, 1999
FOR TAX QUALIFIED AND NON-TAX QUALIFIED ANNUITY PLANS
This Prospectus describes 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 Contract are flexible. Contracts may be purchased by
individuals or on a group basis by employers to fund tax-qualified pension
profit-sharing or tax sheltered annuity ("TSA") plans. For information on
Individual Contracts issued in New York on or after May 1, 1997, see "New York
Individual Contracts Issued On or After May 1, 1997," and for information on
contracts issued on a group basis, see "Group Contracts."
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 ("check-o-matic" as described under "Purchase of Contracts") is elected,
the minimum initial purchase payment required is $25. For non-tax qualified and
Individual Retirement Accounts ("IRAs") including SEP IRAs, SIMPLE IRAs and
Roth IRAs the minimum initial purchase payment required is $1,000. For
individual Contracts issued under tax-qualified or employer sponsored plans
other than IRAs, a minimum annual payment of $1,000 must be made. For Contracts
with a Maturity Date in the first Contract year, a minimum initial purchase
payment of $10,000 is required. 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") (see Appendix A) as specified by the
Contract Owner in the application, if any, for the Contract. The Account is
divided into Subaccounts, each of which invests in a corresponding series of The
Phoenix Edge Series Fund, Wanger Advisors Trust or Templeton Variable Products
Series Fund (collectively, the "Funds").
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 the Contract was issued
with the 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.")
It may not be advantageous to purchase a Contract as a replacement for an
existing annuity contract or life insurance policy. You should recognize that a
contract that has been in existence for a period of time might have certain
advantages to you over a new contract. On the other hand, the proposed Contract
may offer new features which are more important to you.
It is in your best interest to have adequate information before a decision
to replace your present annuity contract becomes final so that you may
understand the basic features of both the proposed Contract and your existing
contract.
If you are replacing a life insurance policy, it is important to understand
that the proposed Contract would provide limited, if any, life insurance
coverage, and that annuities and life insurance are treated differently under
the tax laws.
In all cases, it is important to know if the replacement will result in
current tax liability.
This Prospectus provides information a prospective investor ought to know
before investing and should be kept for future reference. It is accompanied by a
current Prospectus for each of the Funds. No offer is being made of a Contract
funded by any Fund 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 Account 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
<PAGE>
TABLE OF CONTENTS
Heading Page
- ---------------------------------------------------------------
SPECIAL TERMS.............................................. 3
SUMMARY OF EXPENSES........................................ 4
SUMMARY ................................................... 9
FINANCIAL HIGHLIGHTS....................................... 11
PERFORMANCE HISTORY........................................ 15
THE VARIABLE ACCUMULATION ANNUITY.......................... 17
PHOENIX AND THE ACCOUNT.................................... 17
INVESTMENTS OF THE ACCOUNT ................................ 17
The Phoenix Edge Series Fund........................... 17
Wanger Advisors Trust.................................. 18
Templeton Variable Products Series Fund................ 18
PURCHASE OF CONTRACTS ..................................... 19
DEDUCTIONS AND CHARGES..................................... 20
Premium Tax ........................................... 20
Sales Charges ......................................... 20
Charges for Mortality and Expense Risks ............... 20
Charges for Administrative Services ................... 21
Other Charges ......................................... 21
THE ACCUMULATION PERIOD.................................... 21
Accumulation Units .................................... 21
Accumulation Unit Values .............................. 21
Transfers ............................................. 21
Surrender of Contract; Partial Withdrawals ............ 22
Lapse of Contract ..................................... 23
Payment Upon Death Before Maturity Date (Non-New
York Individual Contracts)......................... 23
NEW YORK INDIVIDUAL CONTRACTS ISSUED ON OR AFTER
MAY 1, 1997................................................ 23
Sales Charges.......................................... 23
Daily Administrative Fee............................... 23
Maturity Date.......................................... 23
Ownership of the Contract.............................. 23
Payment Upon Death Before Maturity Date................ 24
Transfers.............................................. 24
GROUP CONTRACTS............................................ 24
Allocated Group Contracts ............................. 24
Unallocated Group Contracts ........................... 25
THE ANNUITY PERIOD ........................................ 25
Variable Accumulation Annuity Contracts................ 25
Annuity Options ....................................... 26
Option A--Life Annuity With Specified Period Certain... 26
Option B--Non-Refund Life Annuity ..................... 26
Option D--Joint and Survivor Life Annuity ............. 26
Option E--Installment Refund Life Annuity ............. 26
Option F--Joint and Survivor Life Annuity With
Specified Period Certain ........................... 26
Option G--Payments for Specified Period ............... 26
Option H--Payments of Specified Amount ................ 26
Option I--Variable Payment Life Annuity with Ten-Year
Period Certain .................................... 27
Option J--Joint Survivor Variable Payment Life Annuity
with Ten-Year Period Certain ....................... 27
Option K--Variable Payment Annuity for a Specified
Period ............................................. 27
Option L--Variable Payment Life Expectancy Annuity..... 27
Option M--Unit Refund Variable Payment Life Annuity.... 27
Option N--Variable Payment Non-Refund Life Annuity..... 27
Other Options and Rates................................ 27
Other Conditions ...................................... 27
Payment Upon Death After Maturity Date ................ 27
VARIABLE ACCOUNT VALUATION PROCEDURES...................... 27
MISCELLANEOUS PROVISIONS .................................. 28
Assignment............................................. 28
Deferment of Payment .................................. 28
Free Look Period....................................... 28
Amendments to Contracts ............................... 28
Substitution of Fund Shares ........................... 28
Ownership of the Contract ............................. 28
FEDERAL INCOME TAXES ...................................... 29
Introduction .......................................... 29
Tax Status............................................. 29
Taxation of Annuities in General....................... 29
Surrenders or Withdrawals Prior to the Contract
Maturity Date .................................... 29
Surrenders or Withdrawals On or After the Contract
Maturity Date .................................... 29
Penalty Tax on Certain Surrenders and Withdrawals .. 29
Additional Considerations.............................. 30
Diversification Standards ............................. 31
Qualified Plans........................................ 31
Tax Sheltered Annuities ("TSAs") ................... 32
Keogh Plans......................................... 32
Individual Retirement Accounts ..................... 32
Corporate Pension and Profit-Sharing Plans ......... 33
Deferred Compensation Plans with Respect to
Service for State and Local Governments and
Tax Exempt Organizations ......................... 33
Penalty Tax on Certain Surrenders and Withdrawals
from Qualified Contracts.......................... 33
Seek Tax Advice..................................... 33
SALES OF VARIABLE ACCUMULATION CONTRACTS .................. 34
STATE REGULATION .......................................... 34
REPORTS ................................................... 34
VOTING RIGHTS ............................................. 34
TEXAS OPTIONAL RETIREMENT PROGRAM ......................... 34
LITIGATION ................................................ 34
LEGAL MATTERS ............................................. 34
STATEMENT OF ADDITIONAL INFORMATION........................ 35
APPENDIX A ................................................ 36
APPENDIX B ................................................ 37
2
<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 Subaccounts
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.
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 I, J, K, M
and N.
CONTRACT: The deferred variable accumulation annuity contracts 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, if any, 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. For 403(b)
plans with loans, the Contract Value is the sum of all Accumulation Units held
in the Subaccounts of the Account and the value held in the GIA plus the value
held in the Loan Security Account, less any Loan Debt.
FIXED PAYMENT ANNUITY: A benefit providing 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: The Phoenix Edge Series Fund, the Wanger Advisors Trust and the Templeton
Variable Products Series Fund.
GROUP CONTRACT: The deferred variable accumulation annuity contract, offered to
employers or trusts to fund tax-qualified plans for groups of participants,
described in this Prospectus.
GIA: An allocation option under which amounts deposited are guaranteed to earn a
fixed rate of interest. Excess interest also may be credited, in the sole
discretion of Phoenix.
ISSUE DATE: The date that the initial purchase payment is invested under a
Contract.
LOAN DEBT: Loan Debt is equal to the sum of the outstanding loan balance plus
any accrued loan interest.
LOAN SECURITY ACCOUNT: The Loan Security Account is part of the general account
and is the sole security for 403(b) loans. It is increased with all loan amounts
taken and reduced by all repayments of loan principal.
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, $1,000, $25, $1,000
annually and $10,000 is required for non-qualified, IRA, bank draft program,
qualified plan Contracts and Contracts with a Maturity Date in the first
Contract year, 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.
VALUATION DATE: A Valuation Date is every day the New York Stock Exchange
("NYSE") is open for trading and Phoenix is open for business.
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: The 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.
3
<PAGE>
<TABLE>
<CAPTION>
SUMMARY OF EXPENSES
INDIVIDUAL CONTRACTS ONLY
ISSUED IN NEW YORK
CONTRACT OWNER TRANSACTION EXPENSES INDIVIDUAL AND GROUP CONTRACTS ON OR AFTER 5/1/97
------------------------------ -------------------
<S> <C> <C>
Sales Charge Imposed on Purchases.......................................... None None
Deferred Sales Load (as a percentage of amount surrendered)(1).............
Age of Payment in Complete Years 0-1................................... 6% 7%
Age of Payment in Complete Years 1-2................................... 5% 6%
Age of Payment in Complete Years 2-3................................... 4% 5%
Age of Payment in Complete Years 3-4................................... 3% 4%
Age of Payment in Complete Years 4-5................................... 2% 3%
Age of Payment in Complete Years 5-6................................... 1% 2%
Age of Payment in Complete Years 6..................................... None N/A
Age of Payment in Complete Years 6-7................................... N/A 1%
Age of Payment in Complete Years 7 and thereafter...................... N/A None
Exchange Fee -- Maximum Allowable Charge Per Exchange...................... $10 $10
ANNUAL CONTRACT FEE
Maximum................................................................ $35 $35
SEPARATE ACCOUNT ANNUAL EXPENSES
(as a percentage of average account value)
Mortality and Expense Risk Fees (depending on Contract form)(2)........ 1.25% or 1.00% 1.25%
Daily Administrative Fee............................................... None 1.25%
Total Separate Account Annual Expenses (depending on Contract form)(2). 1.25% or 1.00% 1.375%
FUND ANNUAL EXPENSES
(as a percentage of Fund average net assets)
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
TOTAL ANNUAL EXPENSES(3)
INVESTMENT RULE 12B-1 (AFTER EXPENSE
SERIES MANAGEMENT FEES FEES OTHER EXPENSES(3) REIMBURSEMENT)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
THE PHOENIX EDGE SERIES FUND
Aberdeen New Asia............... 1.00% N/A .25% 1.25%
Balanced........................ .55% N/A .15% .70%
Engemann Nifty Fifty(4)......... .90% N/A .15% 1.05%
Growth.......................... .63% N/A .11% .74%
International................... .75% N/A .26% 1.01%
Money Market.................... .40% N/A .15% .55%
Multi-Sector Fixed Income....... .50% N/A .15% .65%
Phoenix Growth & Income(4)...... .70% N/A .15% .85%
Phoenix Value Equity(4)......... .70% N/A .15% .85%
Real Estate Securities.......... .75% N/A .25% 1.00%
Research Enhanced Index......... .45% N/A .10% .55%
Schafer Mid-Cap Value(4)........ 1.05% N/A .15% 1.20%
Seneca Mid-Cap Growth(4)........ .80% N/A .25% 1.05%
Strategic Allocation............ .58% N/A .13% .71%
Strategic Theme................. .75% N/A .25% 1.00%
</TABLE>
(1) A sales charge 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. 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) The expense risk charge under a Contract is either .60% or .85%, depending
on when the Contract was issued. (See "Deductions and Charges--Charges for
Mortality and Expense Risks.")
(3) Each Series pays a portion or all of its total annual expenses other than
the management fee. The Research Enhanced Index Series will pay up to .10%;
the Growth, Multi-Sector Fixed Income, Strategic Allocation, Money Market
and Balanced Series will pay up to .15%; the International Series will pay
up to .40%; the Real Estate Securities, Strategic Theme and Aberdeen New
Asia Series will pay up to .25%. Absent expense reimbursement, total annual
expenses were .66% for Multi-Sector Fixed Income, 1.05% for Research
Enhanced Index, 1.07% for Real Estate Securities, 1.14% for Strategic Theme
and 2.00% for Aberdeen New Asia. Expenses may be higher or lower than those
shown but are subject to expense limitations as noted.
(4) Inclusion of this Subaccount began on March 2, 1998. Accordingly, annualized
expenses have been projected for the fiscal year ending December 31, 1998.
Without reimbursement, the Total Annual Expenses are estimated to be
approximately 1.35% for Engemann Nifty Fifty, 1.68% for Seneca Mid-Cap,
1.10% for Phoenix Growth & Income, 1.10% for Phoenix Value Equity and 1.31%
for Schafer Mid-Cap Series.
4
<PAGE>
<TABLE>
<CAPTION>
SUMMARY OF EXPENSES (CONTINUED)
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL ANNUAL EXPENSES(1)
INVESTMENT RULE 12B-1 (AFTER EXPENSE
SERIES MANAGEMENT FEES FEES OTHER EXPENSES(1) REIMBURSEMENT)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
Mutual Shares Investments-- Class 2(4).............. .40% .25% .60% 1.25%
Templeton Stock--Class 2(2)......................... .69% .25% .19% 1.13%
Templeton Asset Allocation--Class 2(2).............. .60% .25% .18% 1.03%
Templeton International--Class 2(2)................. .69% .25% .19% 1.13%
Templeton Developing Markets--Class 2(3)............ 1.25% .25% .33% 1.83%
WANGER ADVISORS TRUST
Wanger Foreign Forty(5)............................. 1.00% N/A .45% 1.45%
Wanger International Small Cap...................... 1.28% N/A .32% 1.60%
Wanger Twenty(5).................................... .95% N/A .40% 1.35%
Wanger U.S. Small Cap............................... .97% N/A .09% 1.06%
</TABLE>
(1) Each Series pays a portion or all of its Total Annual Expenses other than
the management fee. The Wanger Foreign Forty will pay up to .45%, the Wanger
International Small Cap will pay up to .60%, the Wanger Twenty will pay up
to .40% and the Wanger U.S. Small Cap will pay up to .50%. Expenses may be
higher or lower than those shown but are subject to expense limitations as
noted.
(2) Class 2 shares of the Templeton Variable Products Series Fund have a
distribution plan or "Rule 12b-1 Plan" which is described in the Fund's
prospectus. Because Class 2 shares were not offered until May 1, 1997, the
figures (other than "12b-1 Fees") are estimates for 1998 based on the
historical expenses of the Fund's Class 1 shares for the fiscal year ended
December 31, 1997, except that Management Fees and Total Annual Expenses
have been restated to reflect the management fee schedule which was approved
by shareholders and effective on May 1, 1997. Actual Management Fees and
Total Annual Expenses during 1997 were lower. See Fund prospectus for
details.
(3) Class 2 shares of the Templeton Variable Products Series Fund have a
distribution plan or "Rule 12b-1 Plan" which is described in the Fund's
prospectus. Because Class 2 shares were not offered until May 1, 1997, the
figures (other than "12b-1 Fees") are estimates for 1998 based on the
historical expenses of the Fund's Class 1 shares for the fiscal year ended
December 31, 1997.
(4) Class 2 shares of the Templeton Variable Products Series Fund have a
distribution plan or "12b-1 Plan" which is described in the Fund's
prospectus. Because Class 2 shares are new, the Investment Manager has
agreed in advance to waive a portion of the management fees and make certain
payments to reduce expenses as necessary so that Total Annual Expenses do
not exceed 1.25%. Absent any waivers, Total Annual Expenses are estimated to
be 1.45%.
(5) Inclusion of this Subaccount began on February 1, 1999. Accordingly,
annualized expenses have been projected for the fiscal year ending December
31, 1999. Without reimbursement, the Total Annual Expenses are estimated to
be approximately 3.51% for Wanger Foreign Forty and 1.63% for Wanger Twenty.
EXAMPLES--THE INFORMATION INCLUDED IN THESE EXAMPLES DOES NOT APPLY TO NEW YORK
INDIVIDUAL CONTRACTS ISSUED ON OR AFTER MAY 1, 1997 OR GROUP CONTRACTS:
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:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
SERIES 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------ ------ ------- ------- -------
<S> <C> <C> <C> <C>
Growth..................................... $ 78 $ 108 $138 $ 252
Multi-Sector Fixed Income.................. 77 105 134 243
Strategic Allocation....................... 77 107 137 249
Money Market............................... 76 102 129 233
International.............................. 80 115 151 280
Balanced................................... 77 106 136 248
Real Estate Securities..................... 80 115 151 279
Strategic Theme............................ 80 115 151 279
Aberdeen New Asia.......................... 83 122 163 303
Research Enhanced Index.................... 76 102 N/A N/A
Engemann Nifty Fifty(1) ................... 81 117 N/A N/A
Phoenix Growth & Income(1)................. 79 110 N/A N/A
Phoenix Value Equity(1).................... 79 110 N/A N/A
Seneca Mid-Cap Growth(1)................... 81 117 N/A N/A
Schafer Mid-Cap Value(1)................... 82 121 N/A N/A
Wanger U.S. Small Cap...................... 81 117 154 285
Wanger International Small Cap............. 86 132 180 336
Wanger Foreign Forty(3).................... 84 128 173 322
Wanger Twenty(3)........................... 83 125 168 313
Templeton Stock--Class 2................... 81 119 157 291
Templeton Asset Allocation--Class 2........ 80 116 152 282
Templeton International--Class 2........... 81 119 157 291
Templeton Developing Markets--Class 2...... 88 139 191 358
Mutual Shares Investments--Class 2(2)...... 83 122 N/A N/A
- --------------------------------------------------------------------------------------
</TABLE>
(1) Inclusion of this Subaccount began on March 2, 1998.
(2) Inclusion of this Subaccount began on November 2, 1998.
(3) Inclusion of this Subaccount began on February 1, 1999.
5
<PAGE>
SUMMARY OF EXPENSES (CONTINUED)
If you do not surrender your Contract: You would pay the following expenses on a
$1,000 investment assuming 5% annual return on assets:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
SERIES 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------ ------- ------- --------
<S> <C> <C> <C> <C>
Growth..................................... $ 22 $ 69 $ 117 $ 252
Multi-Sector Fixed Income.................. 21 66 113 243
Strategic Allocation....................... 22 68 116 249
Money Market............................... 20 63 108 233
International.............................. 25 77 131 280
Balanced................................... 22 67 115 248
Real Estate Securities..................... 25 76 131 279
Strategic Theme............................ 25 76 131 279
Aberdeen New Asia.......................... 27 84 143 303
Research Enhanced Index.................... 20 63 N/A N/A
Engemann Nifty Fifty(1).................... 25 78 N/A N/A
Phoenix Growth & Income(1)................. 23 72 N/A N/A
Phoenix Value Equity(1).................... 23 72 N/A N/A
Seneca Mid-Cap Growth(1)................... 25 78 N/A N/A
Schafer Mid-Cap Value(1)................... 27 82 N/A N/A
Wanger U.S. Small Cap...................... 25 78 134 285
Wanger International Small Cap............. 31 94 160 336
Wanger Foreign Forty(3).................... 29 90 153 322
Wanger Twenty(3)........................... 28 87 148 313
Templeton Stock--Class 2................... 26 80 137 291
Templeton Asset Allocation--Class 2........ 25 77 132 282
Templeton International--Class 2........... 26 80 137 291
Templeton Developing Markets--Class 2...... 33 101 171 358
Mutual Shares Investments--Class 2(2)...... 27 84 N/A N/A
- ----------------------------------------------------------------------------------------------------------
</TABLE>
(1) Inclusion of this Subaccount began on March 2, 1998.
(2) Inclusion of this Subaccount began on November 2, 1998.
(3) Inclusion of this Subaccount began on February 1, 1999.
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. It is based on historical Fund expenses, as a percentage
of new assets for the year ended December 31, 1997, except as indicated. The
tables reflect Account annual expenses of 1.25% as well as the Funds. (See
"Deductions and Charges" in this Prospectus and in the Fund Prospectuses.)
Premium or other taxes levied by any governmental entity with respect to the
Contract 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" and Appendix B.)
The Examples should not be considered a representation of past or future
expenses and actual expenses may be greater or less than those shown and are
based on Contracts assessing an expense risk charge of .85%. (See "Deductions
and Charges.")
6
<PAGE>
SUMMARY OF EXPENSES (CONTINUED)
EXAMPLES--THE INFORMATION INCLUDED IN THESE EXAMPLES APPLIES TO INDIVIDUAL
CONTRACTS ISSUED ONLY IN NEW YORK ON OR AFTER MAY 1, 1997:
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:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
SERIES 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------ ------- ------- --------
<S> <C> <C> <C> <C>
Growth..................................... $ 87 $ 118 $ 152 $ 268
Multi-Sector Fixed Income.................. 86 115 148 259
Strategic Allocation....................... 86 117 151 265
Money Market............................... 85 112 143 249
International.............................. 89 126 166 295
Balanced................................... 86 117 150 264
Real Estate Securities..................... 89 126 165 294
Strategic Theme............................ 89 126 165 294
Aberdeen New Asia.......................... 92 133 178 318
Research Enhanced Index.................... 85 112 N/A N/A
Engemann Nifty Fifty(1) ................... 90 127 N/A N/A
Phoenix Growth & Income(1)................. 88 122 N/A N/A
Phoenix Value Equity(1).................... 88 122 N/A N/A
Seneca Mid-Cap Growth(1)................... 90 127 N/A N/A
Schafer Mid-Cap Value(1)................... 91 132 N/A N/A
Wanger U.S. Small Cap...................... 90 128 168 300
Wanger International Small Cap............. 95 144 195 351
Wanger Foreign Forty(3).................... 94 139 187 337
Wanger Twenty(3)........................... 93 136 182 328
Templeton Stock--Class 2................... 91 130 172 307
Templeton Asset Allocation--Class 2........ 90 127 167 297
Templeton International--Class 2........... 91 130 172 307
Templeton Developing Markets--Class 2...... 98 150 206 372
Mutual Shares Investments--Class 2(2)...... 92 133 N/A N/A
- ----------------------------------------------------------------------------------------------------------
</TABLE>
If you annuitize 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:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
SERIES 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------ ------- ------- --------
<S> <C> <C> <C> <C>
Growth..................................... $ 87 $ 118 $ 125 $ 268
Multi-Sector Fixed Income.................. 86 115 121 259
Strategic Allocation....................... 86 117 124 265
Money Market............................... 85 112 116 249
International.............................. 89 126 139 295
Balanced................................... 86 117 123 264
Real Estate Securities..................... 89 126 138 294
Strategic Theme............................ 89 126 138 294
Aberdeen New Asia.......................... 92 133 151 318
Research Enhanced Index.................... 85 112 N/A N/A
Engemann Nifty Fifty(1).................... 90 127 N/A N/A
Phoenix Growth & Income(1)................. 88 122 N/A N/A
Phoenix Value Equity(1).................... 88 122 N/A N/A
Seneca Mid-Cap Growth(1)................... 90 127 N/A N/A
Schafer Mid-Cap Value(1)................... 91 132 N/A N/A
Wanger U.S. Small Cap...................... 90 128 141 300
Wanger International Small Cap............. 95 144 168 351
Wanger Foreign Forty(3).................... 94 139 160 337
Wanger Twenty(3)........................... 93 136 155 328
Templeton Stock--Class 2................... 91 130 145 307
Templeton Asset Allocation--Class 2........ 90 127 140 297
Templeton International--Class 2........... 91 130 145 307
Templeton Developing Markets--Class 2...... 98 150 179 372
Mutual Shares Investments--Class 2(2)...... 92 133 N/A N/A
- ----------------------------------------------------------------------------------------------------------
</TABLE>
(1) Inclusion of this Subaccount began on March 2, 1998.
(2) Inclusion of this Subaccount began on November 2, 1998.
(3) Inclusion of this Subaccount began on February 1, 1999.
7
<PAGE>
SUMMARY OF EXPENSES (CONTINUED)
If you do not surrender your Contract: You would pay the following expenses on a
$1,000 investment assuming 5% annual return on assets:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
SERIES 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------ ------- ------- --------
<S> <C> <C> <C> <C>
Growth..................................... $ 24 $ 73 $ 125 $ 268
Multi-Sector Fixed Income.................. 23 70 121 259
Strategic Allocation....................... 23 72 124 265
Money Market............................... 22 67 116 249
International.............................. 26 81 139 295
Balanced................................... 23 72 123 264
Real Estate Securities..................... 26 81 138 294
Strategic Theme............................ 26 81 138 294
Aberdeen New Asia.......................... 29 88 151 318
Research Enhanced Index.................... 22 67 N/A N/A
Engemann Nifty Fifty(1).................... 27 82 N/A N/A
Phoenix Growth & Income(1)................. 25 77 N/A N/A
Phoenix Value Equity(1).................... 25 77 N/A N/A
Seneca Mid-Cap Growth(1)................... 27 82 N/A N/A
Schafer Mid-Cap Value(1)................... 28 87 N/A N/A
Wanger U.S. Small Cap...................... 27 83 141 300
Wanger International Small Cap............. 32 99 168 351
Wanger Foreign Forty(3).................... 31 94 160 337
Wanger Twenty(3)........................... 30 91 155 328
Templeton Stock--Class 2.................. 28 85 145 307
Templeton Asset Allocation--Class 2....... 27 82 140 297
Templeton International--Class 2.......... 28 85 145 307
Templeton Developing Markets--Class 2..... 35 105 179 372
Mutual Shares Investments--Class 2(2)..... 29 88 N/A N/A
- ----------------------------------------------------------------------------------------------------------
</TABLE>
(1) Inclusion of this Subaccount began on March 2, 1998.
(2) Inclusion of this Subaccount began on November 2, 1998.
(3) Inclusion of this Subaccount began on February 1, 1999.
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. It is based on historical Fund expenses as a percentage
of net assets for the year ended December 31, 1997, except as indicated. The
tables reflect expenses of the Account as well as the Funds. (See "Deductions
and Charges" in this Prospectus and in the Fund Prospectuses.)
The Examples should not be considered a representation of past or future
expenses and actual expenses may be greater or less than those shown. (See
"Deductions and Charges.")
8
<PAGE>
SUMMARY
- --------------------------------------------------------------------------------
The individual deferred accumulation annuity contracts ("Contract")
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 Contract. You also may transfer amounts held under the
Contract 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 Contract is eligible for purchase as non-tax 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 or 408A 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 CONTRACT?
The Contract currently offers a number of series of The Phoenix Edge Series
Fund, Wanger Advisors Trust and Templeton Variable Products 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 Phoenix Edge Series Fund," "Wanger Advisors
Trust" and "Templeton Variable Products Series Fund.")
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
Options K or L. 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 Mortality and Expense Risks.")
The daily administrative fee applies only to Individual Contracts issued in New
York on or after May 1, 1997. (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 date of a partial withdrawal, surrender of the Contract,
Maturity Date or payment of death proceeds. (See "Premium Tax.") To cover its
fixed cost of administration, Phoenix generally charges each Contract $35 each
year.
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 non-tax qualified and IRA plans, 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 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.
9
<PAGE>
For Contracts with a Maturity Date in the first Contract year, a minimum
initial purchase payment of $10,000 is required.
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?
Prior to the Maturity Date, 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 issued,
the Temporary Money Market Allocation Amendment provides that no transfers may
be made until the 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.
DOES THE CONTRACT PROVIDE FOR PAYMENT UPON DEATH?
The Contract provides 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 Contract also provides for payment upon death after the
Contract Maturity Date. Special provisions may apply if the Owner and the
Annuitant are not the same person. (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 CONTRACT?
If the Annuitant is living, amounts held under the Contract may be withdrawn
in whole or in part prior to the Maturity Date, or after the Maturity Date under
Annuity Options K or L. Although loans are available only under 403(b) plans,
certain limitations may apply (see "Qualified Plans; Tax Sheltered Annuities").
There may be a federal tax penalty assessed in connection with withdrawals (see
"Federal Income Taxes").
CAN THE CONTRACT 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.
10
<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. As used
below, the designation "VA1" refers to Contracts assessing an expense risk
charge of .60% and "VA2," "VA3" and "GSE" refer to Contracts assessing an
expense risk charge of .85% and not including a daily administration fee. (See
"Deductions and Charges.") As there were no Contracts issued in New York on or
after May 1, 1997, data is not available for this table.
<TABLE>
MONEY MARKET SUBACCOUNT
VA1
---------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------
<CAPTION>
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Unit value, beginning of
period.......................... $2.126440 $2.045097 $1.954211 $1.900873 $1.866308 $1.820007 $1.734559 $1.619595 $1.497413 $1.407621
Unit value, end of period....... $2.214444 $2.126440 $2.045097 $1.954211 $1.900873 $1.866308 $1.820007 $1.734559 $1.619595 $1.497413
========= ========= ========= ========= ========= ========= ========= ========= ========= =========
Number of units outstanding
(000)........................... 2,264 3,460 3,457 4,649 4,617 8,601 10,289 13,110 13,319 12,813
</TABLE>
<TABLE>
MONEY MARKET SUBACCOUNT
VA2, VA3 & GSE
---------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------
<CAPTION>
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Unit value, beginning of
period.......................... $2.074515 $2.000092 $1.915930 $1.868172 $1.838756 $1.797544 $1.717328 $1.607305 $1.489598 $1.403711
Unit value, end of period ...... $2.155028 $2.074515 $2.000092 $1.915930 $1.868172 $1.838756 $1.797544 $1.717328 $1.607305 $1.489598
========= ========= ========= ========= ========= ========= ========= ========= ========= =========
Number of units outstanding
(000)........................... 32,025 40,530 37,026 38,007 30,143 27,132 15,331 8,723 4,057 1,741
</TABLE>
<TABLE>
GROWTH SUBACCOUNT
VA1
---------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------
<CAPTION>
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Unit value, beginning of
period......................... $9.222031 $8.273644 $6.384494 $6.355486 $5.362579 $4.910837 $3.474821 $3.373255 $2.501870 $2.431756
Unit value, end of period...... $11.055774 $9.222031 $8.273644 $6.384494 $6.355486 $5.362579 $4.910837 $3.474821 $3.373255 $2.501870
========== ========= ========= ========= ========= ========= ========= ========= ========= =========
Number of units outstanding
(000).......................... 6,273 7,215 8,153 8,351 8,671 8,652 7,280 6,658 6,726 6,243
</TABLE>
<TABLE>
GROWTH SUBACCOUNT
VA2, VA3 & GSE
---------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------
<CAPTION>
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Unit value, beginning of
period......................... $8.999162 $8.093932 $6.261062 $6.248053 $5.284626 $4.851447 $3.440659 $3.348325 $2.489403 $2.425706
Unit value, end of period...... $10.762048 $8.999162 $8.093932 $6.261062 $6.248053 $5.284626 $4.851447 $3.440659 $3.348325 $2.489403
========== ========= ========= ========= ========= ========= ========= ========= ========= =========
Number of units outstanding
(000).......................... 97,099 100,883 94,344 76,226 52,751 29,531 12,343 4,415 1,792 655
</TABLE>
<TABLE>
MULTI-SECTOR SUBACCOUNT
VA1
---------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------
<CAPTION>
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Unit value, beginning of
period......................... $3.761132 $3.379335 $2.762836 $2.952674 $2.572692 $2.360698 $1.993832 $1.913888 $1.786177 $1.632777
Unit value, end of period...... $4.143015 $3.761132 $3.379335 $2.762836 $2.952674 $2.572692 $2.360698 $1.993832 $1.913888 $1.786177
========= ========= ========= ========= ========= ========= ========= ========= ========= =========
Number of units outstanding
(000).......................... 3,556 4,114 4,418 4,839 5,798 5,539 5,541 5,085 6,195 5,585
</TABLE>
11
<PAGE>
FINANCIAL HIGHLIGHTS
(SELECTED DATA FOR A UNIT OUTSTANDING THROUGHOUT THE INDICATED PERIOD)
<TABLE>
MULTI-SECTOR SUBACCOUNT
VA2, VA3 & GSE
---------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------
<CAPTION>
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Unit value, beginning of
period......................... $3.671202 $3.306804 $2.710153 $2.902941 $2.535693 $2.332392 $1.974705 $1.900136 $1.777482 $1.628898
Unit value, end of period...... $4.022553 $3.671202 $3.306804 $2.710153 $2.902941 $2.535693 $2.332392 $1.974705 $1.900136 $1.777482
========= ========= ========= ========= ========= ========= ========= ========= ========= =========
Number of units outstanding
(000).......................... 29,600 27,079 25,435 20,608 19,839 10,612 3,480 1,438 856 396
</TABLE>
<TABLE>
ALLOCATION SUBACCOUNT
VA1
---------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------
<CAPTION>
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Unit value, beginning of
period......................... $3.801441 $3.520947 $3.008513 $3.081973 $2.804149 $2.559543 $1.999109 $1.909058 $1.608209 $1.587193
Unit value, end of period...... $4.544296 $3.801441 $3.520947 $3.008513 $3.081973 $2.804149 $2.559543 $1.999109 $1.909058 $1.608209
========= ========= ========= ========= ========= ========= ========= ========= ========= =========
Number of units outstanding
(000).......................... 13,378 15,341 18,038 19,981 23,027 23,424 22,916 22,667 24,606 31,107
</TABLE>
<TABLE>
ALLOCATION SUBACCOUNT
VA2, VA3 & GSE
---------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
<CAPTION>
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Unit value, beginning of
period......................... $3.707833 $3.442824 $2.948151 $3.028790 $2.762529 $2.527829 $1.979067 $1.894604 $1.600110 $1.583050
Unit value, end of period...... $4.421518 $3.707833 $3.442824 $2.948151 $3.028790 $2.762529 $2.527829 $1.979067 $1.894604 $1.600110
========= ========= ========= ========= ========= ========= ========= ========= ========= =========
Number of units outstanding
(000).......................... 64,407 69,901 73,165 68,860 53,869 30,431 13,524 7,031 3,797 3,139
</TABLE>
<TABLE>
INTERNATIONAL SUBACCOUNT
VA1
-------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED DECEMBER 31, FROM
----------------------- INCEPTION
5/1/90 TO
1997 1996 1995 1994 1993 1992 1991 12/31/90
---- ---- ---- ---- ---- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Unit value, beginning of period..................... $1.615890 $1.375527 $1.267735 $1.279733 $0.933515 $1.081746 $0.912543 $1.000000
Unit value, end of period .......................... $1.792595 $1.615890 $1.375527 $1.267735 1.279733 $0.933515 $1.081746 $0.912543
========= ========= ========= ========= ======== ========= ========= =========
Number of units outstanding (000)................... 2,998 3,337 3,762 5,926 3,309 1,401 816 490
</TABLE>
<TABLE>
INTERNATIONAL SUBACCOUNT
VA2, VA3 & GSE
-------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED DECEMBER 31, FROM
----------------------- INCEPTION
5/1/90 TO
1997 1996 1995 1994 1993 1992 1991 12/31/90
---- ---- ---- ---- ---- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Unit value, beginning of period..................... $1.589771 $1.356645 $1.253391 $1.268491 $0.927578 $1.077492 $0.911158 $1.000000
Unit value, end of period .......................... $1.759243 $1.589771 $1.356645 $1.253391 $1.268491 $0.927578 $1.077492 $0.911158
========= ========= ========= ========= ========= ========= ========= =========
Number of units outstanding (000)................... 76,704 80,535 78,985 88,400 39,929 12,307 4,364 1,616
</TABLE>
<TABLE>
BALANCED SUBACCOUNT
VA1
-----------------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED DECEMBER 31, FROM
----------------------- INCEPTION
5/1/92 TO
1997 1996 1995 1994 1993 12/31/92
---- ---- ---- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C>
Unit value, beginning of period..... $1.503025 $1.373104 $1.124370 $1.168840 $1.086965 $1.000000
Unit value, end of period........... $1.755101 $1.503025 $1.373104 $1.124370 $1.168840 $1.086965
========= ========= ========= ========= ========= =========
Number of units outstanding (000)... 2,885 3,271 4,027 4,732 5,601 3,283
</TABLE>
12
<PAGE>
FINANCIAL HIGHLIGHTS
(SELECTED DATA FOR A UNIT OUTSTANDING THROUGHOUT THE INDICATED PERIOD)
<TABLE>
BALANCED SUBACCOUNT
VA2, VA3 & GSE
-----------------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED DECEMBER 31, FROM
----------------------- INCEPTION
5/1/92 TO
1997 1996 1995 1994 1993 12/31/92
---- ---- ---- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C>
Unit value, beginning of period..... $1.485649 $1.360620 $1.116862 $1.163951 $1.085113 $1.000000
Unit value, end of period........... $1.730535 $1.485649 $1.360620 $1.116862 $1.163951 $1.085113
========= ========= ========= ========= ========= =========
Number of units outstanding (000)... 110,735 118,572 126,919 130,797 123,929 39,740
</TABLE>
<TABLE>
REAL ESTATE SUBACCOUNT
VA1 VA2, VA3 & GSE
-------------------------------------------- ---------------------------------------------
<CAPTION>
FROM INCEPTION FROM INCEPTION
YEAR ENDED DECEMBER 31, 5/1/95 TO YEAR ENDED DECEMBER 31, 5/1/95 TO
1997 1996 12/31/95 1997 1996 12/31/95
---- ---- -------- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C>
Unit value, beginning of period......... $1.522792 $1.155453 $1.000000 $1.535829 $1.168262 $1.000000
Unit value, end of period............... $1.840367 $1.522792 $1.155453 $1.851492 $1.535829 $1.168262
========= ========= ========= ========= ========= =========
Number of units outstanding (000)....... 405 189 34 19,835 12,614 7,009
</TABLE>
<TABLE>
INTERNATIONAL SMALL CAP SUBACCOUNT
VA1 VA2, VA3 & GSE
------------------------------------------ -------------------------------------------
<CAPTION>
FROM FROM
YEAR ENDED DECEMBER 31, INCEPTION YEAR ENDED DECEMBER 31, INCEPTION
5/1/95 TO 5/1/95 TO
1997 1996 12/31/95 1997 1996 12/31/95
---- ---- -------- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C>
Unit value, beginning of period............. $1.620307 $1.239576 $1.000000 $1.740203 $1.334598 $1.000000
Unit value, end of period................... $1.580723 $1.620307 $1.239576 $1.693453 $1.740203 $1.334598
========= ========= ========= ========= ========= =========
Number of units outstanding (000)........... 1,630 1,632 194 47,318 37,820 7,738
</TABLE>
<TABLE>
U.S. SMALL CAP SUBACCOUNT
VA1 VA2, VA3 & GSE
------------------------------------------ -------------------------------------------
<CAPTION>
FROM FROM
YEAR ENDED DECEMBER 31, INCEPTION YEAR ENDED DECEMBER 31, INCEPTION
5/1/95 TO 5/1/95 TO
1997 1996 12/31/95 1997 1996 12/31/95
---- ---- -------- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C>
Unit value, beginning of period............. $1.680622 $1.157802 $1.000000 $1.673666 $1.155807 $1.000000
Unit value, end of period................... $2.153561 $1.680622 $1.157802 $2.139447 $1.673666 $1.155807
========= ========= ========= ========= ========= =========
Number of units outstanding (000)........... 3,346 2,888 460 83,070 58,623 17,039
</TABLE>
<TABLE>
THEME SUBACCOUNT
VA1 VA2, VA3 & GSE
------------------------------ ------------------------------
<CAPTION>
FROM INCEPTION FROM INCEPTION
YEAR ENDED 1/29/96 TO YEAR ENDED 1/29/96 TO
12/31/97 12/31/96 12/31/97 12/31/96
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Unit value, beginning of period.................................... $1.086084 $1.000000 $1.090843 $1.000000
Unit value, end of period.......................................... $1.259897 $1.086084 $1.262435 $1.090843
========= ========= ========= =========
Number of units outstanding (000).................................. 737 621 23,027 17,311
</TABLE>
<TABLE>
ASIA SUBACCOUNT
VA1 VA2, VA3 & GSE
------------------------------ ------------------------------
<CAPTION>
FROM FROM
INCEPTION INCEPTION
YEAR ENDED 9/17/96 TO YEAR ENDED 9/17/96 TO
12/31/97 12/31/96 12/31/97 12/31/96
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Unit value, beginning of period..................................... $0.997626 $1.000000 $0.998026 $1.000000
Unit value, end of period........................................... $0.667590 $0.997626 $0.666233 $0.998026
========= ========= ========= =========
Number of units outstanding (000)................................... 223 395 9,542 8,125
</TABLE>
13
<PAGE>
FINANCIAL HIGHLIGHTS
(SELECTED DATA FOR A UNIT OUTSTANDING THROUGHOUT THE INDICATED PERIOD)
<TABLE>
RESEARCH ENHANCED INDEX SUBACCOUNT
VA1 VA2, VA3 & GSE
--------------- ---------------
<CAPTION>
FROM FROM
INCEPTION INCEPTION
7/15/97 TO 7/15/97 TO
12/31/97 12/31/97
-------- --------
<S> <C> <C>
Unit value, beginning of period....................................................... $1.000000 $1.000000
Unit value, end of period............................................................. $1.019907 $1.052252
========= =========
Number of units outstanding (000)..................................................... 600 22,856
</TABLE>
<TABLE>
TEMPLETON STOCK SUBACCOUNT
VA1 VA2, VA3 & GSE
<CAPTION>
--------------- --------------
FROM FROM
INCEPTION INCEPTION
5/1/97 TO 5/1/97 TO
12/31/97 12/31/97
-------- --------
<S> <C> <C>
Unit value, beginning of period....................................................... $1.000000 $1.000000
Unit value, end of period............................................................. $1.063678 $1.062244
========= =========
Number of units outstanding (000)..................................................... 116 7,841
</TABLE>
<TABLE>
TEMPLETON ASSET ALLOCATION SUBACCOUNT
VA1 VA2, VA3 & GSE
--------------- ---------------
<CAPTION>
FROM FROM
INCEPTION INCEPTION
6/2/97 TO 5/2/97 TO
12/31/97 12/31/97
-------- --------
<S> <C> <C>
Unit value, beginning of period....................................................... $1.000000 $1.000000
Unit value, end of period............................................................. $1.032795 $1.076228
========= =========
Number of units outstanding (000)..................................................... 152 4,254
</TABLE>
<TABLE>
TEMPLETON INTERNATIONAL SUBACCOUNT
VA1 VA2, VA3 & GSE
--------------- ---------------
<CAPTION>
FROM FROM
INCEPTION INCEPTION
7/2/97 TO 5/5/97 TO
12/31/97 12/31/97
-------- --------
<S> <C> <C>
Unit value, beginning of period....................................................... $1.000000 $1.000000
Unit value, end of period............................................................. $0.973941 $1.075966
========= =========
Number of units outstanding (000)..................................................... 144 6,907
</TABLE>
<TABLE>
TEMPLETON DEVELOPING MARKETS SUBACCOUNT
VA1 VA2, VA3 & GSE
--------------- ---------------
<CAPTION>
FROM FROM
INCEPTION INCEPTION
5/15/97 TO 5/1/97 TO
12/31/97 12/31/97
-------- --------
<S> <C> <C>
Unit value, beginning of period....................................................... $1.000000 $1.000000
Unit value, end of period............................................................. $0.676043 $0.666465
========= =========
Number of units outstanding (000)..................................................... 718 4,166
</TABLE>
ENGEMANN NIFTY FIFTY SUBACCOUNT, PHOENIX GROWTH & INCOME SUBACCOUNT,
PHOENIX VALUE EQUITY SUBACCOUNT, SCHAFER MID-CAP VALUE SUBACCOUNT,
SENECA MID-CAP GROWTH SUBACCOUNT
These Subaccounts commenced operations as of March 2, 1998; accordingly, data
for these Subaccounts is not yet available.
MUTUAL SHARES INVESTMENTS SUBACCOUNT
This Subaccount commenced operations as of November 2, 1998; accordingly, data
for this Subaccount is not yet available.
WANGER TWENTY SUBACCOUNT AND WANGER FOREIGN FORTY SUBACCOUNT
These Subaccounts commenced operations as of February 1, 1999; accordingly, data
for these Subaccounts is not yet available.
14
<PAGE>
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
Multi-Sector Subaccount and as total return of any Subaccount. For the
Multi-Sector Subaccount, quotations of yield will be based on all investment
income per unit earned during a given 30-day period (including dividends and
interest), less expenses accrued during the period ("net investment income"),
and are computed by dividing 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 Fund for the period quoted.
Below are quotations of average annual total return for Contracts assessing
an .85% expense charge which are not subject to a daily administration fee,
calculated as described above.
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIOD ENDED 12/31/97
------------------------------
COMMENCE- 10 SINCE
SUBACCOUNT MENT DATE 1 YEAR 5 YEARS YEARS INCEPTION
- ---------- --------- ------ ------- ----- ---------
Multi-Sector........... 1/1/83 3.62% 9.14% 9.35% 9.55%
Balanced............... 5/1/92 10.02% 9.22% N/A 9.68%
Strategic Allocation... 9/17/84 12.63% 9.30% 10.69% 11.68%
Growth................. 1/1/83 12.95% 14.72% 15.96% 17.00%
International.......... 5/1/90 4.51% 13.11% N/A 7.48%
Money Market........... 10/10/82 (1.90%) 2.68% 4.24% 4.98%
Real Estate............ 5/1/95 13.86% N/A N/A 23.63%
Theme.................. 1/29/96 9.30% N/A N/A 9.49%
Asia................... 9/17/96 (36.98%) N/A N/A (30.27%)
Enhanced Index......... 7/15/97 N/A N/A N/A (1.16%)
U.S. Small Cap......... 5/1/95 20.74% N/A N/A 30.52%
Int'l. Small Cap....... 5/1/95 (8.10%) N/A N/A 19.57%
TPT Asset Alloc.(1).... 11/28/88 7.54% 13.29% N/A 10.93%
TPT Stock (1).......... 11/4/88 4.13% 15.30% N/A 11.36%
TPT International (1).. 5/1/92 6.02% 16.39% N/A 12.88%
TPT Dev. Mkts.(1)...... 9/15/96 (34.15%) N/A N/A (27.72%)
(1) Returns shown prior to 5/1/97, the inception date of the Class 2 shares, are
derived from the historical performance of Class 1 shares. These returns
have been adjusted to reflect the higher operating expenses for Class 2
shares, which includes a 12b-1 fee of .25% annually.
ANNUAL TOTAL RETURN(1)
----------------------
MULTI- ALLO- INTER- MONEY
YEAR SECTOR BALANCED CATION GROWTH NATIONAL MARKET
- ---- ------ -------- ------ ------ -------- ------
1983.... 4.64% N/A N/A 31.26% N/A 7.03%
1984.... 10.02% N/A (1.45%) 9.29% N/A 8.85%
1985.... 19.02% N/A 25.76% 33.26% N/A 6.69%
1986.... 17.82% N/A 14.25% 18.98% N/A 5.19%
1987.... (0.18%) N/A 11.18% 5.61% N/A 5.13%
1988.... 8.01% N/A 1.08% 2.63% N/A 6.12%
1989.... 6.90% N/A 18.41% 34.51% N/A 7.86%
1990.... 3.92% N/A 4.45% 2.75% (8.88%) 6.88%
1991.... 18.11% N/A 27.73% 41.00% 18.25% 4.67%
1992.... 8.72% 8.51% 9.28% 8.93% (13.91%) 2.29%
1993.... 14.48% 7.27% 9.64% 18.23% 36.75% 1.60%
1994.... (6.64%) (4.05%) (2.66%) 0.21% (1.19%) 2.56%
1995.... 22.02% 21.83% 16.78% 29.27% 8.24% 4.39%
1996.... 11.02% 9.19% 7.70% 11.18% 17.18% 3.72%
1997.... 9.71% 16.48% 19.25% 19.59% 10.66% 3.88%
REAL ENHANCED U.S. INT'L.
YEAR ESTATE THEME ASIA INDEX SMALL CAP SMALL CAP
- ---- ------ ----- ---- ----- --------- ---------
1995.... 16.83%(3) N/A N/A N/A 15.07%(3) 33.41%(3)
1996.... 31.46% 9.08%(3) (0.20%)(3) N/A 44.80% 30.39%
1997.... 20.55% 15.73% (33.24%) 5.23%(3) 27.83% (2.69%)
TPT TPT TPT TPT
YEAR ALLOCATION(2) STOCK(2) INT'L.(2) DEV. MKTS.(2)
- ---- ------------- -------- --------- -------------
1989.... 11.63% 12.97% N/A N/A
1990.... (9.36%) (12.39%) N/A N/A
1991.... 25.85% 25.65% N/A N/A
1992.... 6.49% 5.54% (7.07%)(3) N/A
1993.... 24.30% 32.08% 45.19% N/A
1994.... (4.43%) (3.68%) (3.71%) N/A
1995.... 20.75% 23.41% 14.05% N/A
1996.... 17.11% 20.62% 22.21% 0.93%
1997.... 13.86% 10.25% 12.25% (30.26%)(3)
(1) Sales Charges have not been deducted from the Annual Total Return.
(2) Returns shown prior to 5/1/97, the inception date of the Class 2 shares, are
derived from the historical performance of Class 1 shares. These returns
have been adjusted to reflect the higher operating expenses for Class 2
shares, which includes a 12b-1 fee of .25% annually. Past fee waivers by the
Investment Manager of the Templeton Developing Markets Fund increased total
return.
(3) From inception.
Below are quotations of average annual total return for New York Contracts
issued on or after May 1, 1997. These figures have been restated to reflect an
average annual total return assuming the assessment of an .85% expense charge
and .125% daily administration fee, calculated as described above based on past
performance of existing Subaccounts as data for these Subaccounts are not yet
available.
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIOD ENDED 12/31/97
------------------------------
COMMENCE- 10 SINCE
SUBACCOUNT MENT DATE 1 YEAR 5 YEARS YEARS INCEPTION
- ---------- --------- ------ ------- ----- ---------
Multi-Sector........ 1/1/83 3.09% 9.02% 9.21% 9.40%
Balanced............ 5/1/92 9.85% 9.11% N/A% 9.60%
Strategic Allocation 9/17/84 12.61% 9.20% 10.56% 11.55%
Growth.............. 1/1/83 12.96% 14.37% 15.81% 16.84%
International....... 5/1/90 4.05% 13.06% N/A 7.34%
Money Market........ 10/10/82 (2.72%) 2.36% 4.10% 4.85%
Real Estate......... 5/1/95 13.92% N/A N/A 24.23%
Theme............... 1/29/96 9.10% N/A N/A 9.59%
Asia................ 9/17/96 (37.65%) N/A N/A (30.87%)
Enhanced Index...... 7/15/97 N/A N/A N/A (1.20%)
U.S. Small Cap...... 5/1/95 21.18% N/A N/A 31.14%
Int'l. Small Cap.... 5/1/95 (9.08%) N/A N/A 20.03%
TPT Asset Alloc.(1). 11/28/88 7.26% 12.94% N/A 10.79%
15
<PAGE>
AVERAGE ANNUAL TOTAL RETURN (CONT'D)
FOR THE PERIOD ENDED 12/31/97
-----------------------------
COMMENCE- 10 SINCE
SUBACCOUNT MENT DATE 1 YEAR 5 YEARS YEARS INCEPTION
- ---------- --------- ------ ------- ----- ---------
TPT Stock(1)........ 11/4/88 3.63% 14.95% N/A 11.22%
TPT International(1) 5/1/92 5.64% 16.38% N/A 12.83%
TPT Dev. Mkts.(1)... 9/15/96 (34.86%) N/A% N/A (28.36%)
ANNUAL TOTAL RETURN(1)
----------------------
MULTI- ALLO- INTER- MONEY
YEAR SECTOR BALANCED CATION GROWTH NATIONAL MARKET
- ---- ------ -------- ------ ------ -------- ------
1983.... 4.56% N/A N/A 31.10% N/A 6.85%
1984.... 9.82% N/A (1.51%) 9.16% N/A 8.72%
1985.... 18.97% N/A 25.61% 33.09% N/A 6.56%
1986.... 17.67% N/A 14.11% 18.83% N/A 5.06%
1987.... (0.30%) N/A 11.02% 5.47% N/A 5.05%
1988.... 8.98% N/A 0.94% 2.50% N/A 5.98%
1989.... 6.76% N/A 18.28% 34.35% N/A 7.71%
1990.... 3.78% N/A 4.32% 2.62% (8.98%) 6.74%
1991.... 17.96% N/A 27.56% 40.81% 18.11% 4.53%
1992.... 8.58% 8.43% 9.15% 8.79% (14.03%) 2.16%
1993.... 14.35% 7.13% 9.50% 18.08% 36.59% 1.47%
1994.... (6.78%) (4.17%) (2.75%) 0.08% (1.31%) 2.42%
1995.... 21.89% 21.69% 16.63% 29.13% 8.12% 4.23%
1996.... 10.89% 9.06% 7.57% 11.06% 17.05% 3.60%
1997.... 9.57% 16.34% 19.10% 19.45% 10.53% 3.76%
REAL ENHANCED U.S. INT'L.
YEAR ESTATE THEME ASIA INDEX SMALL CAP SMALL CAP
- ---- ------ ----- ---- ----- --------- ---------
1995.... 16.75%(3) N/A N/A N/A 14.97%(3) 33.35%(3)
1996.... 31.31% 8.98%(3) (0.23%)(3) N/A 44.64% 30.24%
1997.... 20.41% 15.59% (33.33%) 5.19%(3) 27.68% (2.81%)
TPT TPT TPT TPT
YEAR ALLOCATION(2) STOCK(2) INT'L.(2) DEV. MKTS.(2)
- ---- ------------- -------- --------- -------------
1989.... 11.49% 12.83% N/A N/A
1990.... (9.47%) (12.50%) N/A N/A
1991.... 25.70% 25.50% N/A N/A
1992.... 6.36% 5.41% (7.15%)(3) N/A
1993.... 24.15% 31.92% 45.01% N/A
1994.... (4.55%) (3.80%) (3.83%) N/A
1995.... 20.60% 23.26% 13.91% N/A
1996.... 16.96% 20.47% 22.06% 0.90%
1997.... 13.74% 10.10% 12.12% (30.35%(3)
(1) Sales Charges have not been deducted from the Annual Total Return.
(2) Returns shown prior to 5/1/97, the inception date of the Class 2 shares, are
derived from the historical performance of Class 1 shares. These returns
have been adjusted to reflect the higher operating expenses for Class 2
shares, which includes a 12b-1 fee of .25% annually. Past fee waivers by the
Investment Manager of the Templeton Developing Markets Fund increased total
return.
(3) From Inception.
THESE RATES OF RETURN ARE NOT AN ESTIMATE OR GUARANTEE OF FUTURE PERFORMANCE.
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 Contract Owner'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:
CONTRACTS
CONTRACTS ASSESSING .85%
ASSESSING EXPENSE CHARGE
85% EXPENSE & .125% DAILY
CHARGE ADMIN. FEE
------ ----------
Value of hypothetical pre-existing account
with exactly one unit at the beginning of
the period:.............................. 2.153665 1.090370
Value of the same account (excluding
capital changes) at the end of the
seven-day period:........................ 2.155028 1.091039
Calculation:
Ending account value..................... 2.155028 1.091039
Less beginning account value............. 2.153665 1.090370
Net change in account value.............. 0.001363 0.000669
Base period return:
(adjusted change/beginning account
value)................................... 0.000633 0.000614
Current yield = return x (365/7) =.......... 3.30% 3.20%
Effective yield = [(1 + return)(365/7)] -1 = 3.35% 3.25%
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 annuities 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 Series' or Advisers' current investment strategies and
management style. Current strategies and style may change to respond to a
changing market and economic conditions. From time to time, the Series may
discuss specific portfolio holdings or industries in such communications. To
illustrate components of overall performance, the Series may separate their
cumulative and average annual returns into income results and capital gains or
losses; or cite separately as a return figure the equity or bond portion
16
<PAGE>
of a Series' portfolio; or compare a Series' equity or bond return figure to
well-known indices of market performance including, but not limited to, the S&P
500, Dow Jones Industrial Average, First Boston High Yield Index, and Solomon
Brothers Corporate and Government Bond indices.
Each 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. To the extent that payments are not allocated to the GIA, the
amounts which will be available for annuity payments under a Contract will
depend on the investment performance of the amounts allocated to the Subaccounts
of the Account. Upon the maturity of a Contract, the amounts held under a
Contract will continue to be invested in the Account and/or the GIA. The monthly
annuity payments will vary in accordance with the investment experience of the
selected Subaccounts unless invested in the GIA, then the monthly anniversary
payment will not vary. 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 payments and Contract Value among
the GIA or the Subaccounts.
PHOENIX AND THE ACCOUNT
- --------------------------------------------------------------------------------
Phoenix is a mutual life insurance company originally chartered in
Connecticut in 1851 and redomiciled to New York in 1992. Its Executive Office is
located at One American Row, Hartford, Connecticut 06102 and its main
administrative office is located at 100 Bright Meadow Boulevard, Enfield,
Connecticut 06083-1900. Its New York principal office is located at 10 Krey
Boulevard, East Greenbush, New York 12144. Phoenix is the nation's 9th largest
mutual life insurance company and has consolidated assets of $18.5 billion.
Phoenix sells insurance policies and annuity contracts through its own field
force of full time agents and through brokers. Its operations are conducted in
all 50 states, the District of Columbia, Canada and Puerto Rico.
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 1940
Act. Registration under the 1940 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 and the Contracts, 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 Phoenix general account (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.
INVESTMENTS OF THE ACCOUNT
- --------------------------
PARTICIPATING INVESTMENT FUNDS
THE PHOENIX EDGE SERIES FUND
Certain Subaccounts of the Account invest in corresponding Series of The
Phoenix Edge Series Fund. The Fund currently has the following Series available
through the contracts:
MONEY MARKET SERIES: The investment objective of the Money Market Series is
to provide maximum current income consistent with capital preservation and
liquidity. The Money Market Series invests exclusively in high quality money
market instruments.
GROWTH SERIES: The investment objective of the Growth Series is to achieve
intermediate and long-term growth of capital, with income as a secondary
consideration. The Growth Series invests principally in common stocks of
corporations believed by management to offer growth potential.
MULTI-SECTOR FIXED INCOME ("MULTI-SECTOR") SERIES: The investment objective
of the Multi-Sector Series is to seek long-term total return. The Multi-Sector
Series seeks to achieve its investment objective by investing in a diversified
portfolio of high yield and high quality fixed income securities.
STRATEGIC ALLOCATION ("ALLOCATION") SERIES: The investment objective of the
Allocation Series is to realize as high a level of total return over an extended
period of time as is considered consistent with prudent investment risk. The
Allocation Series invests in stocks, bonds and money market instruments in
accordance with the Investment Adviser's appraisal of investments most likely to
achieve the highest total return.
INTERNATIONAL SERIES: The investment objective of the International Series
is to seek a high total return consistent with reasonable risk. The
International Series invests primarily in an internationally diversified
portfolio of equity securities. It intends to reduce its risk by engaging in
hedging transactions involving options, futures contracts and foreign currency
transactions. The International Series provides a means for investors to invest
a portion of their assets outside the United States.
BALANCED SERIES: The investment objective of the Balanced Series is to seek
reasonable income, long-term capital growth and conservation of capital. The
Balanced Series invests based on combined considerations of risk, income,
capital enhancement and protection of capital value.
17
<PAGE>
REAL ESTATE SECURITIES ("REAL ESTATE") SERIES: The investment objective of
the Real Estate Series is to seek capital appreciation and income with
approximately equal emphasis. Under normal circumstances, it invests in
marketable securities of publicly traded real estate investment trusts (REITs)
and companies that operate, develop, manage and/or invest in real estate located
primarily in the United States.
STRATEGIC THEME ("THEME") SERIES: The investment objective of the Theme
Series is to seek long-term appreciation of capital by identifying securities
benefiting from long-term trends present in the United States and abroad. The
Theme Series invests primarily in common stocks believed to have substantial
potential for capital growth.
ABERDEEN NEW ASIA ("ASIA") SERIES: The investment objective of the Asia
Series is to seek long-term capital appreciation. The Asia Series invests
primarily in a diversified portfolio of equity securities of issuers organized
and principally operating in Asia, excluding Japan.
RESEARCH ENHANCED INDEX ("ENHANCED INDEX") SERIES: The investment objective
of the Enhanced Index Series is to seek high total return by investing in a
broadly diversified portfolio of equity securities of large and medium
capitalization companies within market sectors reflected in the S&P 500. The
Enhanced Index Series invests in a portfolio of undervalued common stocks and
other equity securities which appear to offer growth potential and an overall
volatility of return similar to that of the S&P 500.
ENGEMANN NIFTY FIFTY ("NIFTY FIFTY") SERIES: The investment objective of the
Nifty Fifty Series is to seek long-term capital appreciation by investing in
approximately 50 different securities which offer the best potential for
long-term growth of capital. At least 75% of the Series' assets will be invested
in common stocks of high quality growth companies. The remaining portion will be
invested in common stocks of small corporations with rapidly growing earnings
per share or common stocks believed to be undervalued.
SENECA MID-CAP GROWTH ("SENECA MID-CAP") SERIES: The investment objective of
the Seneca Mid-Cap Series is to seek capital appreciation primarily through
investments in equity securities of companies that have the potential for above
average market appreciation. The Series seeks to outperform the Standard &
Poor's Mid-Cap 400 Index.
PHOENIX GROWTH AND INCOME ("GROWTH & INCOME") SERIES: The investment
objective of the Growth & Income Series is to seek dividend growth, current
income and capital appreciation by investing in common stocks. The Growth &
Income Series seeks to achieve its objective by selecting securities primarily
from equity securities of the 1,000 largest companies traded in the United
States, ranked by market capitalization.
PHOENIX VALUE EQUITY ("VALUE") SERIES: The primary investment objective of
the Value Series is long-term capital appreciation, with a secondary investment
objective of current income. The Value Series seeks to achieve its objective by
investing in a diversified portfolio of common stocks that meet certain
quantitative standards that indicate above average financial soundness and
intrinsic value relative to price.
SCHAFER MID-CAP VALUE ("SCHAFER MID-CAP") SERIES: The primary investment
objective of the Schafer Mid-Cap Series is to seek long-term capital
appreciation, with current income as the secondary investment objective. The
Schafer Mid-Cap Series will invest in common stocks of established companies
having a strong financial position and a low stock market valuation at the time
of purchase which are believed to offer the possibility of increase in value.
WANGER ADVISORS TRUST
Certain Subaccounts of the Account invest in corresponding Series of the
Wanger Advisors Trust. The following Series are currently available through the
Contracts:
WANGER U.S. SMALL CAP ("U.S. SMALL CAP") SERIES: The investment objective of
the U.S. Small Cap Series is to provide long-term growth. The U.S. Small Cap
Series invests primarily in securities of U.S. companies with total common stock
market capitalization of less than $1 billion.
WANGER INTERNATIONAL SMALL CAP ("INTERNATIONAL SMALL CAP") SERIES: The
investment objective of the International Small Cap Series is to provide
long-term growth. The International Small Cap Series invests primarily in
securities of non-U.S. companies with total common stock market capitalization
of less than $1 billion.
WANGER TWENTY (TWENTY) SERIES: The investment objective of the Twenty Series
is to seek long-term capital growth. The Twenty Series invests primarily in the
stocks of U.S. companies with market capitalizations of $1 billion to $10
billion and ordinarily focuses its investments in 20 to 25 U.S. companies.
WANGER FOREIGN FORTY (FOREIGN) SERIES: The investment objective of the
Foreign Series is to seek long-term capital growth. The Foreign Series invests
primarily in equity securities of foreign companies with market capitalizations
of $1 billion to $10 billion and focuses its investments in 40 to 60 companies
in the developed markets.
TEMPLETON VARIABLE PRODUCTS SERIES FUND
Certain Subaccounts of the Account invest in corresponding Series of the
Templeton Variable Products Series Fund. The following Series are currently
available through the Contracts:
TEMPLETON STOCK ("STOCK") SERIES: The investment objective of the Stock
Series is to provide capital growth. The Stock Series invests primarily in
common stocks issued by companies, large and small, in various nations
throughout the world.
TEMPLETON ASSET ALLOCATION ("TPT ALLOCATION") SERIES: The investment
objective of the TPT Allocation Series is to seek a high level of total return
through a flexible investment policy. The TPT Allocation Series invests in
stocks of companies of any nation, debt securities of companies and governments
of any nation and in money market instruments. Changes in the asset mix will be
made in an attempt to capitalize on total return potential produced by changing
economic conditions throughout the world.
TEMPLETON INTERNATIONAL ("TPT INTERNATIONAL") SERIES: The investment
objective of the TPT International Series is to seek long-term capital growth
through a flexible policy of investing. The TPT International Series invests in
stocks and debt obligations of companies and governments outside the United
States. Any income realized will be incidental. Although the Series generally
invests in
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common stock, it also may invest in preferred stocks and certain debt
securities such as convertible bonds which are rated in any category by S&P or
Moody's or which are unrated by any rating agency.
TEMPLETON DEVELOPING MARKETS ("DEVELOPING MARKETS") SERIES: The investment
objective of the Developing Markets Series is to seek long-term capital
appreciation. The Developing Markets Series invests primarily in equity
securities of issuers in countries having developing markets.
MUTUAL SHARES INVESTMENTS ("SHARES") SERIES: The primary investment
objective of the Shares Series is to seek capital appreciation with income as a
secondary objective. The Shares Series invests in domestic equity securities and
domestic debt obligations.
Each Series will be subject to market fluctuations and risks inherent in the
ownership of any security and there can be no assurance that the stated
investment objective of any Series will be realized.
In addition to being sold to the Account, shares of the Funds also are sold
to the Phoenix Home Life Variable Life Account, a separate account used by
Phoenix to receive and invest premiums paid under certain variable life
insurance policies issued by Phoenix. Shares of the Funds also may be sold to
other separate accounts of Phoenix or its affiliates or of other insurance
companies.
It is conceivable that in the future it may be disadvantageous for variable
life insurance separate accounts and variable annuity separate accounts to
simultaneously invest in the Fund(s). Although neither Phoenix nor the Fund(s)
currently foresees any such disadvantages either to variable life insurance
Policyowners or to variable annuity Contract Owners, the Funds' trustees intend
to monitor events in order to identify any material conflicts between variable
life insurance Policyowners and variable annuity Contract Owners and to
determine what action, if any, should be taken in response thereto. Material
conflicts could result from, for example, (1) changes in state insurance laws,
(2) changes in federal income tax laws, (3) changes in the investment management
of any portfolio of the Fund(s) or (4) differences in voting instructions
between those given by variable life insurance Policyowners and those given by
variable annuity Contract Owners. Phoenix will, at its own expense, remedy such
material conflicts including, if necessary, segregating the assets underlying
the variable life insurance policies and the variable annuity contracts and
establishing a new registered investment company.
INVESTMENT ADVISERS
Phoenix Investment Counsel, Inc. ("PIC") is the investment adviser to all
Series in The Phoenix Edge Series Fund except the Real Estate and Asia Series.
Based on subadvisory agreements with the Fund, PIC delegates certain investment
decisions and research functions to subadvisers for the following Series:
Enhanced Index Series J.P. Morgan Investment
Management, Inc.
Nifty Fifty Series Roger Engemann & Associates, Inc.
("Engemann")
Seneca Mid-Cap Series Seneca Capital Management, LLC
("Seneca")
Schafer Mid-Cap Series Schafer Capital Management, Inc.
The investment adviser to the Real Estate Series is Duff & Phelps Investment
Management Co. ("DPIM").
The investment adviser to the Asia Series is Phoenix-Aberdeen International
Advisors LLC ("PAIA"). Pursuant to subadvisory agreements with the Fund, PAIA
delegates certain investment decisions and research functions with respect to
the Asia Series to PIC and Aberdeen Fund Managers, Inc.
PIC, DPIM, Engemann and Seneca are indirect, less than wholly-owned
subsidiaries of Phoenix. PAIA is jointly owned and managed by PM Holdings, Inc.,
a subsidiary of Phoenix, and Aberdeen Fund Managers, Inc.
The investment adviser to the Wanger Advisors Trust is Wanger Asset
Management, L.P.
The investment adviser for the Stock, TPT Asset Allocation and TPT
International Series is Templeton Investment Counsel, Inc.
Templeton Asset Management, Ltd. is the investment adviser for the
Developing Markets Series.
Franklin Mutual Advisers, Inc. is the investment adviser for the Shares
Series.
SERVICES OF THE ADVISERS
The Advisers continuously furnish an investment program for each Series and
manage the investment and reinvestment of the assets of each Series subject at
all times to the authority and supervision of the Trustees. A detailed
discussion of the investment advisers and subadvisers, and the investment
advisory and subadvisory agreements, is contained in the accompanying prospectus
for the Funds.
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 $1,000 and for contracts purchased in connection with
tax-qualified or employer sponsored plans, a minimum initial payment of $1,000
is required. For Contracts with a Maturity Date in the first Contract year, the
minimum initial purchase payment is $10,000. 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 for deposit 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
elected, the minimum initial purchase payment is $25. This payment must
accompany the application, if any. Each subsequent purchase payment under a
Contract must be at least $25.
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<PAGE>
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 any
Subaccount and/or to the GIA, or a combination thereof, in the proportion
specified in the application, if any, for the Contract or as indicated by the
Owner from time to time. Initial purchase payments may, under certain
circumstances, be allocated to the Money Market Subaccount (see "Free Look
Period"). Changes in the allocation of purchase payments will be effective as of
receipt by VPMO by 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 itself only 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."
SALES CHARGES
A deduction for contingent deferred sales charges (also referred to in this
Prospectus as sales or surrender charges) for these Contracts may be taken from
proceeds of withdrawals from, or complete surrender of, the Contracts if assets
are not held under the Contract 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 Options K or L below (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 available only 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 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, 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 the 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 Fund 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% (0.60% for certain contracts issued
prior to March 11, 1993) on an annual basis for expense risks assumed (see the
Contract's Schedule Pages). No mortality and expense risk charge is 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, 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.
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<PAGE>
CHARGES FOR ADMINISTRATIVE SERVICES
Phoenix is responsible for administering the Contract. 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 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. Phoenix also reimburses Phoenix Equity Planning Corporation
("PEPCO") for any expenses incurred by it as "principal underwriter."
To cover certain of its costs of administration, such as preparation of
billings and statements of account, Phoenix generally charges each Contract $35
each year prior to the Contract's Maturity Date. This charge is deducted from
each Subaccount and/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 surrender of a Contract, where
applicable, the entire annual administrative charge is deducted regardless of
when the surrender occurs. If Annuity Options I, J, K, M or N are elected, the
$35 charge will be deducted from each annuity payment in equal amounts after the
Maturity Date.
Phoenix may reduce the sales charge or annual administrative charge for
Contracts issued under tax-qualified plans other than IRAs and Contracts issued
under group or sponsored arrangements, in all states except New York. Generally,
sales 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. In
addition, Phoenix may reduce the annual administrative charge under a Contract
to reflect lower administrative costs.
No sales or annual administrative charges will be deducted for Contracts
sold to registered representatives of the principal underwriter or to officers,
directors and employees of Phoenix and their spouses; or to employees or agents
who retire from Phoenix or PEPCO; or to registered representatives of
broker-dealers with whom PEPCO has selling agreements, regardless as to their
state of residence.
OTHER CHARGES
As compensation for investment management services, the Advisers are
entitled to a fee, payable monthly and based on an annual percentage of the
average aggregate daily net asset values of each Series. These Fund charges and
other expenses are described more fully in the accompanying Fund prospectuses.
THE ACCUMULATION PERIOD
- --------------------------------------------------------------------------------
ACCUMULATION UNITS
Initial purchase payments will be applied within two days if the
application, if any, for a Contract is complete. If an application form which is
incomplete upon submission is completed within five business days of receipt by
VPMO, the initial purchase payment will be applied within two days of the
completion of such application. In the event that 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 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 Funds, the expenses charged against the Funds and the charges and
deductions made against the Subaccount.
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 not 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. 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 800/541-0171
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 orders and allocation changes also will be accepted
on behalf of the Contract Owner from his or her registered representative.
Phoenix and PEPCO will employ reasonable procedures to confirm that telephone
instructions are genuine. They will require verification of account information
and will record
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<PAGE>
telephone instructions on tape. All telephone transfers and allocation
changes will be confirmed in writing to the Contract Owner. To the extent that
procedures reasonably designed to prevent unauthorized transfers are not
followed, Phoenix and PEPCO may be liable for following telephone instructions
for transfers that prove to be fraudulent. However, the Contract Owner would
bear the risk of loss resulting from instructions entered by an unauthorized
third party that Phoenix and PEPCO reasonably believe to be genuine. These
telephone privileges may be modified or terminated at any time
and during times of extreme market volatility, may be difficult to exercise. In
such cases 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 from which funds will be transferred
(sending Subaccount), and if the value in that Subaccount or the GIA drops below
the elected transfer amount, the entire remaining balance will be transferred
and no more systematic transfers will be processed. Funds may be transferred
from only one sending Subaccount or the GIA, but may be allocated to multiple
receiving 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 800/541-0171 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 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. Non-systematic transfers from the GIA will be effectuated on the date of
receipt by VPMO except as otherwise may be requested by the Contract Owner. For
non-systematic 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
batch 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, Phoenix 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, Phoenix reserves the
right to limit the number of transfers made during each Contract year a Contract
is in existence. When the Temporary Money Market Allocation Amendment has been
issued, no transfers may be made until the end of the free look period (see
"Free Look Period"). However, Contract Owners will be permitted at least six
transfers during each Contract year. THERE ARE ADDITIONAL RESTRICTIONS ON
TRANSFERS FROM THE GIA AS DESCRIBED ABOVE AND IN APPENDIX A.
Phoenix reserves the right to limit the number of 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.
SURRENDER OF CONTRACT; PARTIAL WITHDRAWALS
If the Annuitant is living, amounts held under the Contract may be withdrawn
in whole or in part prior to the Maturity Date, or after the Maturity Date under
Annuity Options K or L. 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 available only 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 of a Subaccount 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,
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
Internal Revenue 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.
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Any request for a withdrawal from, or complete surrender of, a Contract
should be mailed to Phoenix Variable Products Mail Operation, PO Box 8027,
Boston, Massachusetts 02266-8027.
LAPSE OF CONTRACT
If on any Valuation Date the Contract Value is 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. 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 (NON-NEW YORK INDIVIDUAL CONTRACTS)
If the Owner is the Annuitant and dies before the Contract Maturity Date,
the death benefit will be paid under the Contract to the Owner/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 six 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 six-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 six-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 VPMO.
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.
NEW YORK INDIVIDUAL CONTRACTS ISSUED ON OR AFTER MAY 1, 1997
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Individual Contracts issued in New York on or after May 1, 1997, have
certain differences from the other individual Contracts described in this
Prospectus. Other than the differences noted in this section, the Contracts are
the same as the other individual Contracts. These differences are reflected in
the "Summary of Expenses for Individual Contracts Issued in New York on or after
May 1, 1997."
SALES CHARGES
A deduction for contingent deferred sales charges for these Contracts may be
taken from proceeds of withdrawals from, or complete surrender of, the Contract
if assets are not held under the Contract for a certain period (see the chart
below). Sales charges are not taken after the Annuity Period has begun, except
with respect to unscheduled withdrawals under Options K or L (see Annuity
Options). A sales charge is not imposed on amounts payable because of the death
of the Annuitant or Owner.
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 imposition of the sales
charge. During the first Contract year, the 10% will be based on the Contract
Value at the time of the first partial surrender. In subsequent years, the 10%
will be based on the previous Contract anniversary value. The deduction for
sales charges, expressed as a percentage of the amounts redeemed greater than
the 10% allowable amount up to a maximum of the total premium 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 7%
1 6%
2 5%
3 4%
4 3%
5 2%
6 1%
7 and over 0%
In the event of the death of the Annuitant or Owner before the Maturity
Date, the sales charge described in the table above will not apply.
DAILY ADMINISTRATIVE FEE
Phoenix charges each Subaccount the daily equivalent of 0.125% annually of
the accumulated value of the Subaccount to cover its variable costs of
administration (such as printing and distribution of materials pertaining to
Contract Owner meetings). This fee is not deducted from the GIA nor from
Contracts sold to registered representatives of PEPCO or broker-dealers with
whom PEPCO has selling agreements, or to officers, directors and employees of
Phoenix or its affiliates and their spouses or to employees or agents who retire
from Phoenix or its affiliates or PEPCO.
MATURITY DATE
The Maturity Date cannot be earlier than five years from the inception of
the Contract, nor later than the Contract anniversary nearest the Annuitant's
90th birthday.
OWNERSHIP OF THE CONTRACT
Joint ownership of the Contract is not permitted.
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PAYMENT UPON DEATH BEFORE MATURITY DATE
If the Owner/Annuitant dies before the Contract Maturity Date, the death
benefit will be paid under the Contract to the Owner/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. Upon the death of the Annuitant or an Owner/Annuitant who has not
yet attained age 85, the death benefit (less any deferred premium tax) is
calculated according to the following method:
1. Death occurring in the first Contract year -- the greater of:
a. 100% of purchase payments, less any withdrawals; or
b. the Contract Value next determined following receipt of a certified
copy of the death certificate at VPMO.
2. Death occurring in the second Contract year or any subsequent Contract
year -- the greater of:
a. the death benefit at the end of the previous Contract year, plus
100% of purchase payments, less any withdrawals made since that
date; or
b. the Contract Value next determined following receipt of a certified
copy of the death certificate at VPMO.
After the Annuitant's age 85, the death benefit (less any deferred premium
tax) equals the Contract Value (no surrender charge is imposed) next determined
following receipt of a certified copy of the death certificate at VPMO.
Upon the death of an Owner who is not the Annuitant, the death proceeds will
be paid to the Owner's beneficiary. The amount of death benefit payable is equal
to the greater of:
a. 100% of purchase payments, less withdrawals; or
b. the Contract Value next determined following receipt of a certified
copy of the death certificate at VPMO.
If the Owner or Owner/Annuitant's beneficiary elects to defer payment of the
death proceeds for a period longer than one Contract year, the death proceeds
that will be payable upon distribution is equal to the greater of:
a. 100% of purchase payments, less withdrawals; or
b. the Contract Value next determined following receipt at VPMO of both
written authorization for distribution and a certified copy of the
death certificate.
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 and the death benefit may be reduced by any premium tax due (see
"Premium Tax"). See also "Distribution at Death Rules" under "Federal Income
Tax."
TRANSFERS
A Contract Owner may request transfers or allocation changes in writing
only. Transfers or allocation changes may not be made by telephone.
GROUP CONTRACTS
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Contracts may be purchased by employers (or trusts) to fund tax-qualified
pension or profit-sharing plans such as defined contribution and defined benefit
plans ("Group Contracts"). Group Contracts may be purchased on an "allocated" or
"unallocated" basis. In most respects the Group Contracts are the same as the
Contracts purchased on an individual basis described elsewhere in this
Prospectus; however, there are certain differences as described in this section.
Phoenix may limit the payments made under a Group Contract to $1,000,000 and
reserves the right to terminate a Group Contract after 20 years.
The GIA, all of the Series of The Phoenix Edge Series Fund, Wanger Advisors
Trust and Templeton Variable Products Series Fund are available for investment.
ALLOCATED GROUP CONTRACTS
Under an allocated Group Contract, the Contract Owner is the trust to whom
the Contract is issued. However, individual participant accounts are maintained
and the Contract Owner passes on certain rights to the plan participants such as
the right to choose Subaccounts, and transfer amounts between Subaccounts.
Under an allocated Group Contract, a minimum initial purchase payment of $25
per participant account is required. Subsequent payments per participant account
must be at least $25 and must total at least $300 per Contract year. The annual
administrative service charge under an allocated Group Contract is currently $15
per participant account; it is guaranteed not to exceed $30.
If withdrawals occur within a certain number of years after deposit, a sales
charge will apply. (Please see description in section "Deductions and Charges --
Sales Charges.") Allocated group contracts do not have a 10% free withdrawal
privilege. A sales charge will not be applied if the withdrawal is for one of
the following:
o death of a participant
o disability
o demonstration of financial hardship
o termination of employment
o retirement (participant account of 5 years or age 55 or older)
o participant loan
o purchase of:
- annuity contract
- retired life certificate
- election of life expectancy distribution option
Under Group Contracts issued in New York, the sales charge will not be
applied to amounts exceeding the total of purchase payments made under the
Contract (calculated at their initial value). In addition, if the Contract has
been in force for at least 20 years and Phoenix terminates the Contract, no
sales charge will apply.
Not more than four transfers may be made from the GIA in any Participant
Account Year and only one such transfer may be made in
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any 3-consecutive month period. The amount of such transfers out of the GIA in
any one Participant Account Year may not exceed the greater of $1,000 or 25% of
the Participant Account Value in the GIA as of the last day of the prior
Participant Account Year.
Upon the death of a participant, a death benefit will be paid to the
Contract Owner. The Contract Owner may then distribute the death benefit in
accordance with the terms of the plan. If the death occurred during the first
six years following the Contract date, this payment would be equal to the
greater of: (a) the sum of all purchase payments made by the participant less
any prior withdrawals or (b) the participant's accumulated value under the
Contract. If the death occurred during any subsequent six-year period, this
payment would equal the greater of: (a) the death benefit that would have been
payable at the end of the immediately preceding six-year period, plus any
purchase payments made and less any partial withdrawals since such date or (b)
the participant's accumulated value under the Contract.
Loans and hardship withdrawals will be available under the Internal Revenue
Code of 1986 Section 401(k) plans after January 1, 1996. If the plan permits
loans, a partial withdrawal from the participant's contract value may be
requested. The partial withdrawal for the loan must be at least $1,000 and the
participant's remaining contract value must be at least $2,000. A contingent
deferred sales charge will not apply to such a partial withdrawal. A $125
administrative charge per partial withdrawal will apply and this amount may be
increased in the future. Loan repayments, including any interest, will be
allocated to the participant's Subaccounts in the same proportion as new
payments. A plan loan partial withdrawal may not be made if a plan loan partial
withdrawal is currently outstanding with respect to that Participant.
UNALLOCATED GROUP CONTRACTS
Under an unallocated Group Contract, the Contract Owner is the trust to whom
the Contract is issued. The Contract Owner exercises all rights under the
Contract on behalf of plan participants; no participant accounts are maintained
under the Contract.
Under an unallocated Group Contract, a minimum initial purchase payment of
$5,000 is required and subsequent payments also must be at least $5,000. The
annual administrative service charge under an unallocated Group Contract is
currently $300; it is guaranteed not to exceed $500.
If amounts are withdrawn in the early Contract years, a sales charge may
apply unless the withdrawal is for the payment of a plan benefit related to the
death or disability of a plan participant or the purchase of an individual
annuity contract or Life Expectancy Distribution option from Phoenix. A
deduction for a sales charge for an unallocated Group Contract may be taken from
the proceeds of a withdrawal from, or complete surrender of, the Contract if the
withdrawal is not related to the payment of a plan benefit or the purchase of an
annuity as described above and the Contract has not been held for a certain
period of time (see chart below). However, withdrawals of up to 15% of the
payments made under a Contract in the first Contract year and up to 15% of the
Contract Value as of the previous Contract anniversary may be made each year
without imposition of a sales charge for payment of plan benefits related to
termination of employment or retirement. The deduction for sales charges,
expressed as a percentage of the amount redeemed in excess of the 15% allowable
amount, is as follows:
CONTINGENT DEFERRED SALES CHARGE
CONTRACT YEAR AS A PERCENTAGE OF AMOUNT WITHDRAWN
------------- -----------------------------------
0 6%
1 6%
2 6%
3 6%
4 6%
5 5%
6 4%
7 3%
8 2%
9 1%
10 and over 0%
The total deferred 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.
Under Group Contracts issued in New York, the sales charge will not be
applied to amounts exceeding the total of purchase payments made under the
Contract (calculated at their initial value). In addition, if the Contract has
been in force for at least 20 years and Phoenix terminates the Contract, no
sales charge will apply.
Upon the death of a participant, a death benefit will be paid to the
Contract Owner. The Contract Owner may then distribute the death benefit in
accordance with the terms of the plan.
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 will provide, 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 Ten-Year Period Certain,
annuity payments, which may vary in amount based on the performance of the
Subaccount 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 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 also may 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 unless a
variable payment option is elected (Options I,
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J, K, L, M or N), 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 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"), 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. If
the Maturity Date occurs in the first Contract year, only Options I, J, K, L, M
or N may be elected. No surrender charge will be assessed under any annuity
option unless unscheduled withdrawals are made under Annuity Options K or L.
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 C--DISCONTINUED
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 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 ten 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
five 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.
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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.
OPTION L--VARIABLE PAYMENT LIFE EXPECTANCY ANNUITY
Provides a variable payout monthly income payable over the Annuitant's
annually recalculated life expectancy or the annually recalculated life
expectancy of the Annuitant and joint annuitant. A Contract Owner may request an
unscheduled withdrawal representing part or all of the remaining Contract Value
at anytime under Option L. Upon the death of the Annuitant (and joint annuitant,
if there is a joint annuitant), the remaining Contract Value (less any
applicable contingent deferred sales charge) will be paid in a lump sum to the
Annuitant's beneficiary.
OPTION M--UNIT REFUND VARIABLE PAYMENT LIFE ANNUITY
Provides variable monthly payments as long as the Annuitant lives. If the
Annuitant dies, the Annuitant's beneficiary will receive the value of the
remaining Annuity Units in a lump sum.
OPTION N--VARIABLE PAYMENT NON-REFUND LIFE ANNUITY
Provides a variable monthly income for the life of the Annuitant. No income
or payment to a beneficiary is paid after the death of the Annuitant.
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 are more favorable than
the applicable rates guaranteed under Group Contracts issued in New York only
and for all Contracts regardless of state of issue, the more favorable 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 or designated beneficiary.
Generally, federal income tax requirements also provide that participants in
qualified plans must begin minimum distributions by April 1 of the calendar year
following the later of: (a) the year in which the employee retires or (b) the
year in which the employee attains age 70 1/2. The date set forth in (a) does
not apply to regular or SIMPLE IRAs and the required distribution rules do not
apply to Roth IRAs. 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, 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 also is the Annuitant dies on or after the Maturity Date,
except as otherwise may be provided under any supplementary Contract between the
Owner and Phoenix, Phoenix will pay to the Owner/Annuitant's beneficiary any
annuity payments due during any applicable period certain under the Annuity
Option in effect on the Annuitant'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. 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.
VARIABLE ACCOUNT VALUATION PROCEDURES
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VALUATION DATE--A Valuation Date is every day the NYSE is open for trading and
Phoenix is open for business. The NYSE is scheduled to be closed for trading on
the following days: New Year's Day, Martin Luther King, Jr. Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day.
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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, whether 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 (see "Charges For Mortality and Expense Risks") and (c) the
results of (a) as adjusted by (b) are divided by the aggregate 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 non-tax 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 Contract Value or (d) when a governmental body
having jurisdiction 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 elected on the application, if any, 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 any.
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 Statement of Additional Information must be filed with
the SEC.
SUBSTITUTION OF FUND SHARES
Although Phoenix believes it to be highly unlikely, it is possible that in
the judgment of its management, one or more of the Series of 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 (except for Individual Contracts issued in New York on
or after May 1, 1997).
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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 with 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 (the "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 1 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 Non-Natural
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. 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 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 five-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 non-taxable 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
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
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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 or other special penalties
applicable to Roth IRAs); (v) allocable to investment in the contract before
August 14, 1982; (vi) under a qualified funding asset (as defined in Code
Section 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 five 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 Plans (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. These distribution requirements do not apply to annuity
contracts under Qualified 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
non-spousal 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 of
distribution in effect at the time of death.
2. TRANSFER OF ANNUITY CONTRACTS.
Transfers of non-qualified 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 NON-NATURAL PERSONS.
If the Contract is held by a non-natural 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 non-natural person is the nominal 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 Tax Sheltered
Annuity 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 non-qualified deferred annuity
contracts issued by the
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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 a Series are
represented by any one investment, no more than 70% is represented by any
two investments, no more than 80% is represented by any three investments
and no more than 90% is represented by any four investments. A
"look-through" rule applies to treat a pro rata portion of each asset of a
Series as an asset of the Account, and each Series of the Funds are 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 Internal Revenue Service 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 any 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, all investments of
the Phoenix Qualified Plan Contracts (i.e., the Funds) will be structured to
comply with the diversification standards because the Funds serve as the
investment vehicle for non-qualified 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 Internal Revenue 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)
TSA arrangements. Taxable distributions eligible to be rolled over generally
will be subject to 20% income tax withholding. Mandatory withholding can be
avoided only 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
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distributions not includible 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 also will be available for use in
connection with certain non-qualified deferred compensation plans.
Numerous changes have been made to the income tax rules governing Qualified
Plans as a result of legislation enacted during the past several years,
including rules with respect to: coverage, participation and maximum
contributions; required distributions; penalty taxes on early or insufficient
distributions and income tax withholding on distributions. The following are
general descriptions of the various types of Qualified Plans and of the use of
the contracts in connection therewith.
1. TAX SHELTERED ANNUITIES ("TSAS").
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.
Effective May 4, 1998, loans may be made available under Internal
Revenue Code Section 403(b) tax sheltered annuity programs. If the program
permits loans, a loan from the participant's contract value may be
requested. The loan must be at least $1,000 and the maximum loan amount is
the greater of: (a) 90% of the first $10,000 of Contract Value minus any
contingent deferred sales charge; and (b) 50% of the Contract Value minus
any contingent deferred sales charge. The maximum loan amount is $50,000. If
loans are outstanding from any other tax-qualified plan then the maximum
loan amount of the Contract may be reduced from that amount stated above in
order to comply with the maximum loan amount requirements under Section
72(p) of the Internal Revenue Code. Amounts borrowed from the GIA are
subject to the same limitations as apply to transfers from the GIA; thus no
more than the greater of $1,000 and 25% of the Contract Value in the GIA may
be borrowed at any one time.
Loan repayments will first pay any accrued loan interest. The balance
will be applied to reduce the outstanding loan balance and will also reduce
the amount of the Loan Security Account by the same amount that the
outstanding loan balance is reduced. The balance of loan repayments, after
payment of accrued loan interest, will be credited to the Subaccounts of the
Separate Account or the GIA account in accordance with the participant's
most recent premium allocation on file with Phoenix.
If a loan repayment is not received by Phoenix before 90 days after the
payment was due, then the entire loan balance plus accrued interest will be
in default. In the case of default, the outstanding loan balance plus
accrued interest will be deemed a distribution for income tax purposes, and
will be reported as such to the extent required by law. At the time of such
deemed distribution interest will continue to accrue until such time as an
actual distribution occurs under the Contract.
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 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 (SARSEP) IRAs no longer may be established. Effective January 1,
1998, individuals may establish Roth IRAs. Special rules also apply to
contributions and withdrawals from Roth IRAs.
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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 (see "Group
Contracts").
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 includible 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 PLANS.
In the case of a withdrawal under a Qualified Plan, 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 Plan. 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 other than Roth 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 includible 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; (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; and (h) distributions from
IRAs for first time home purchase (maximum $10,000) or certain qualified
educational expenses of the Contract Owner, spouse, children or
grandchildren of the Contract Owner. This exception will no longer apply
after the Contract Owner has been re-employed 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 regular or
SIMPLE IRAs and the required distribution rules do not apply to Roth IRAs.
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
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 tax adviser, with regard to the
suitability of the Contract as an investment vehicle for the Qualified Plan.
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SALES OF VARIABLE ACCUMULATION CONTRACTS
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The principal underwriter of the Contracts is PEPCO. Contracts may be
purchased through registered representatives of W. S. Griffith & Co., Inc.
("WSG") licensed to sell Phoenix insurance policies and annuity contracts. WSG
is an indirect wholly-owned subsidiary of Phoenix. PEPCO is an indirect,
majority-owned subsidiary of Phoenix. Contracts also may be purchased through
other broker-dealers or entities registered under the Securities Exchange Act of
1934, whose representatives are authorized by applicable law to sell Contracts
under terms of agreement provided by PEPCO and terms of agreement provided by
Phoenix.
In addition to reimbursing PEPCO for its expenses, Phoenix pays PEPCO an
amount equal to up to 7.25% of the purchase payments under the Contracts. PEPCO
pays any distribution organization an amount which may not exceed up to 7.25% of
purchase payments made under the contract. Any such amount paid with respect to
Contracts sold through other broker-dealers will be paid by Phoenix to or
through PEPCO. 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.
Although the Glass-Steagall Act prohibits banks and bank affiliates from
engaging in the business of underwriting securities, banking regulators have not
indicated that such institutions are prohibited from purchasing variable annuity
contracts upon the order and for the account of their customers.
STATE REGULATION
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Phoenix is subject to the provisions of the New York insurance laws
applicable to mutual life insurance companies and to regulation and supervision
by the New York Superintendent of Insurance. Phoenix also is subject to the
applicable insurance laws of all the other states and jurisdictions in which it
does an insurance business.
State regulation of Phoenix includes certain limitations on the investments
which 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
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Reports showing the Contract Value and containing the financial statements
of the Account will be furnished at least annually to an Owner.
VOTING RIGHTS
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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 each Fund, 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 a Fund; (2) ratification of
the independent accountant for a Fund; (3) approval or amendment of the
investment advisory agreement for the Series of the Fund 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 a Fund. 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 a Fund.
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 may, however, be used to fund another
eligible retirement vehicle.
LITIGATION
- --------------------------------------------------------------------------------
Phoenix, the Account and PEPCO 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 with the
Contracts described in this Prospectus.
34
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
The Statement of Additional Information 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 800/541-0171.
35
<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, interests in the General Account have 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 Securities and Exchange Commission 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 for individual
Contracts and 3% per year for Group Contracts, compounded annually, to amounts
allocated to the GIA. Phoenix may credit interest at a rate in excess of these
rates; however, it is not obligated to credit any interest in excess of these
rates.
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 FOR INDIVIDUAL CONTRACTS AND 3% PER YEAR FOR GROUP
CONTRACTS 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 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 for individual Contracts and 3% per year for Group Contracts,
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"). For 403(b) plans with loans, amounts
borrowed from the GIA will be treated as transfers to the Loan Security Account
and subject to the same limitations as applies to transfers from the GIA (see
"Qualified Plans").
IN GENERAL, ONE TRANSFER PER CONTRACT YEAR IS ALLOWED FROM THE GIA. THE AMOUNT
WHICH CAN BE TRANSFERRED IS LIMITED TO THE GREATER OF $1,000 OR 25% OF THE
CONTRACT VALUE IN THE GIA AT THE TIME OF THE TRANSFER. UNDER THE SYSTEMATIC
TRANSFER PROGRAM, TRANSFERS OF APPROXIMATELY EQUAL AMOUNTS MAY BE MADE OVER A
MINIMUM 18-MONTH PERIOD. NON-SYSTEMATIC TRANSFERS FROM THE GIA WILL BE
EFFECTUATED ON THE DATE OF RECEIPT BY VPMO, UNLESS OTHERWISE REQUESTED BY THE
CONTRACT OWNER.
36
<PAGE>
APPENDIX B
DEDUCTIONS FOR STATE PREMIUM TAXES
QUALIFIED AND NON-QUALIFIED ANNUITY CONTRACTS
<TABLE>
<CAPTION>
UPON UPON
STATE PURCHASE(1) ANNUITIZATION NON-QUALIFIED QUALIFIED
<S> <C> <C> <C> <C>
California .......................................... X 2.35% 0.50%
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, 1999. 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 interpretation.
For a more detailed 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, Maturity Date or payment of death proceeds or
Maturity Date.
37
