PROSPECTUS
PHL VARIABLE ACCUMULATION ACCOUNT
Variable Accumulation Annuity Contract
issued by
PHL VARIABLE INSURANCE COMPANY
VARIABLE PRODUCTS OPERATIONS
101 MUNSON STREET
P.O. BOX 942
GREENFIELD, MASSACHUSETTS 01302-0942
TELEPHONE: (800) 447-4312
For Tax Qualified and Non-Tax Qualified Annuity Plans
This Prospectus describes a deferred variable accumulation annuity contract
("Contract") issued by PHL Variable Insurance Company ("PHL Variable"). The
Contract provides for both an Accumulation Period and an Annuity Period. Premium
payments under the Contract are flexible.
Generally, a minimum initial purchase payment of $1,000 is required and each
subsequent purchase payment must be at least $25. If the bank draft investment
program ("check-o-matic" as described under "Purchase of Contracts") is elected,
the minimum initial purchase payment required is $25. Generally, a Contract may
not be purchased with respect to a proposed Annuitant who is eighty-one years of
age or older.
Purchase payments are allocated to one or more of the available Sub-accounts
of the PHL Variable Accumulation Account (the "Account") and/or to the
Guaranteed Interest Account (see Appendix A) as specified by the Contract Owner
in the application for the Contract. The Account is divided into Sub-accounts,
each of which invests in a corresponding series of The Phoenix Edge Series Fund
or Wanger Advisors Trust (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 Sub-account 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 Guaranteed Interest Account, that payment (or
portion) and any earned interest is refunded. (See "Free Look Period.")
This Prospectus provides information a prospective investor should know
before investing and should be kept for future reference. It is accompanied by
current Prospectuses for the Funds. No offer is being made of a Contract funded
by any Fund for which a current Prospectus has not been delivered.
Contracts are not deposits or obligations of, or guaranteed or endorsed by,
any bank, credit union or affiliated entity and are not federally insured or
otherwise protected by the Federal Deposit Insurance Corporation (FDIC), Federal
Reserve Board, or any other agency and involve investment risks including
possible loss of principal.
Additional information about the Contracts has been filed with the Securities
and Exchange Commission in a Statement of Additional Information, dated July
31, 1995, which is incorporated herein by reference. The Statement of Additional
Information, the table of contents of which is set forth in this Prospectus, is
available without charge upon request by writing or telephoning PHL Variable at
the address or telephone number set forth above.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
JULY 31, 1995
as Supplemented January 29, 1996
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TABLE OF CONTENTS
Heading Page
- ------------------------------------------
SPECIAL TERMS......................... 3
SUMMARY OF EXPENSES................... 4
FINANCIAL HIGHLIGHTS................. 5
PERFORMANCE HISTORY.................. 5
SUMMARY.............................. 6
THE VARIABLE ACCUMULATION ANNUITY.... 8
PHL VARIABLE INSURANCE COMPANY AND THE PHL
VARIABLE ACCUMULATION ACCOUNT...... 9
THE PHOENIX EDGE SERIES FUND......... 9
WANGER ADVISORS TRUST................ 9
PURCHASE OF CONTRACTS................. 10
DEDUCTIONS AND CHARGES................ 10
Premium Tax......................... 10
Sales Charges....................... 10
Charges for Mortality and Expense
Risks 11
Charges for Administrative Services. 11
Other Charges....................... 11
THE ACCUMULATION PERIOD............... 12
Accumulation Units.................. 12
Accumulation Unit Values............ 12
Transfers .......................... 12
Surrender of Contract; Partial
Withdrawals........................ 13
Lapse of Contract................... 13
Payment Upon Death Before Maturity
Date ................................13
THE ANNUITY PERIOD ................... 14
Variable Accumulation Annuity
Contracts.......................... 14
Annuity Options .................... 14
Option A--Life Annuity With Specified
Period Certain .................... 14
Option B--Non-Refund Life Annuity... 15
Option D--Joint and Survivor Life
Annuity ........................... 15
Option E--Installment Refund Life
Annuity ........................... 15
Option F--Joint and Survivor Life
Annuity with 10 Year Period Certain 15
Option G--Payments for Specified
Period ..............................15
Option H--Payments of Specified Amount15
Option I--Variable Payment Life
Annuity with Ten Year Period Certain 15
Option J--Joint Survivor Variable
Payment Life Annuity with Ten Year
Period Certain .................... 15
Option K--Variable Payment Annuity
for a Specified Period............. 15
Option L--Variable Payment Life
Expectancy Annuity ...................15
Option M--Unit Refund Variable
Payment Life Annuity .................15
Heading Page
Option N--Variable Payment Non-Refund
Life Annuity ...................... 15
Other Options and Rates............. 15
Other Conditions.................... 16
Payment Upon Death After Maturity
Date .............................. 16
VARIABLE ACCOUNT VALUATION PROCEDURES. 16
MISCELLANEOUS PROVISIONS.............. 16
Assignment.......................... 16
Deferment of Payment ............... 16
Free Look Period.................... 17
Amendments to Contracts............. 17
Substitution of Fund Shares......... 17
Ownership of the Contract........... 17
FEDERAL INCOME TAXES.................. 17
Introduction........................ 17
Tax Status.......................... 17
Taxation of Annuities in General--
Non-Qualified Plans ................ 17
Surrenders or Withdrawals Prior to
the Contract Maturity Date....... 18
Surrenders or Withdrawals on or
after the Contract Maturity Date. 18
Penalty Tax on Certain Surrenders
and Withdrawals .................. 18
Additional Considerations........... 18
Diversification Standards .......... 19
Qualified Plans..................... 20
Tax Sheltered Annuities .......... 20
Keogh Plans....................... 20
Individual Retirement Accounts.... 20
Corporate Pension and Profit-
Sharing Plans .....................20
Deferred Compensation Plans with
Respect to Service for State and
Local Governments and
Tax-Exempt Organizations......... 21
Seek Tax Advice................... 21
SALES OF VARIABLE ACCUMULATION
CONTRACTS ........................... 21
STATE REGULATION ..................... 21
REPORTS .............................. 21
VOTING RIGHTS ........................ 21
TEXAS OPTIONAL RETIREMENT PROGRAM .... 22
LITIGATION ........................... 22
LEGAL MATTERS ........................ 22
STATEMENT OF ADDITIONAL INFORMATION... 22
APPENDIX A ........................... 23
APPENDIX B ........................... 24
2
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SPECIAL TERMS
As used in this Prospectus, the following terms have the indicated meanings:
ACCOUNT: PHL Variable Accumulation Account.
ACCUMULATION UNIT: A standard of measurement with respect to each Sub-account
used in determining the value of a Contract and the interest in the Sub-accounts
prior to the commencement of annuity payments.
ACCUMULATION VALUE: The value of a Contract on or prior to its Maturity Date,
equal to the sum of the products obtained by multiplying the number of
Accumulation Units in each Sub-account then credited to the Contract by the
appropriate Accumulation Unit Value.
ANNUITANT: The person whose life is used as the measuring life under the
Contract. The primary Annuitant as shown on the Contract's Schedule Page while
the primary Annuitant is living, and then the contingent Annuitant designated on
the application for the Contract or as later changed by the Owner, if the
contingent Annuitant is living at the death of the primary Annuitant.
ANNUITY OPTION: The provisions under which a series of annuity payments is made
to the Annuitant or other payee, such as Life Annuity with Ten Years Certain.
(See "Annuity Options".)
ANNUITY UNIT: A standard of measurement used in determining the amount of each
variable income payment under the variable payment Annuity Options I, J, K, M
and N.
CONTRACT: The deferred variable accumulation annuity contract described in this
Prospectus.
CONTRACT VALUE: Prior to the Maturity Date, the sum of the value under a
Contract of all Accumulation Units held in the Sub-accounts of the Account and
the value held in the Guaranteed Interest Account.
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 Sub-account.
THE FUNDS: The Phoenix Edge Series Fund and the Wanger Advisors Trust.
GUARANTEED INTEREST ACCOUNT (GIA): An allocation option under which premium
amounts are guaranteed to earn a fixed rate of interest. Excess interest may
also be credited, in the sole discretion of PHL Variable Insurance Company.
ISSUE DATE: The date that the initial purchase payment is invested under a
Contract.
MATURITY DATE: The date elected by the Owner pursuant to the Contract as of
which annuity payments will commence. The Maturity Date shall be no earlier than
the fifth Contract anniversary and no later than the Annuitant's 95th birthday.
The election is subject to certain conditions described in "THE ANNUITY PERIOD."
MINIMUM INITIAL PURCHASE PAYMENT: The amount which must be paid when a Contract
is purchased. Minimum initial purchase payments of $1,000, $25, $25, and $1,000
annually are required for non-qualified, IRA, bank draft program, and qualified
plan contracts respectively.
MINIMUM SUBSEQUENT PAYMENT: The amount which must be paid when any subsequent
payments are made, after the minimum initial purchase payment has been made (see
above). The minimum subsequent payment for all Contracts is $25.
OWNER: The person or entity, usually the one to whom the Contract is issued, who
has the sole right to exercise all rights and privileges under the Contract
except as otherwise provided in the Contract. The Owner may be the Annuitant, an
employer, a trust or any other individual or entity specified in the application
for the Contract. However, under Contracts used with certain tax qualified
plans, the Owner must be the Annuitant. A husband and wife may be designated as
joint owners, and if such a joint owner dies, the other joint owner becomes the
sole Owner of the Contract. If no Owner is named, the Annuitant will be the
Owner.
PAYMENT UPON DEATH: The obligation of PHL Variable 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").
PHL VARIABLE: PHL Variable Insurance Company.
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 Sub-accounts.
VARIABLE PRODUCTS OPERATIONS: The Variable Products Operations Division of PHL
Variable Insurance Company.
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SUMMARY OF EXPENSES
CONTRACT OWNER TRANSACTION EXPENSES ALL SUB-ACCOUNTS
- ----------------------------------- ----------------
Sales Load Imposed on Purchases None
Deferred Sales Load
(as a percentage of amount surrendered)*:
Age of Deposit in Complete Years 0-1................ 7%
Age of Deposit in Complete Years 1-2................ 6%
Age of Deposit in Complete Years 2-3................ 5%
Age of Deposit in Complete Years 3-4................ 4%
Age of Deposit in Complete Years 4-5................ 3%
Age of Deposit in Complete Years 5-6................ 2%
Age of Deposit in Complete Years 6-7................ 1%
Age of Deposit in Complete Years 7 and thereafter... None
Exchange Fee
Current Fee......................................... None
Maximum Allowable Charge Per Exchange:.............. $10
ANNUAL CONTRACT FEE
Currently........................................... $35
Maximum............................................. $35
SEPARATE ACCOUNT EXPENSES
(as a percentage of average account value)
Mortality and Expense Risk Fees..................... 1.25%
Account Fees and Expenses
Daily Administrative Fee........................... 0.125%
Total Separate Account Annual Expenses.............. 1.375%
<TABLE>
<CAPTION>
Wanger Wanger
Total Money Real Strategic U.S.Small Int'l Small
Sub-Accounts Growth Bond Return Market Int'l Balanced Estate*** Theme+ Cap*** Cap***
- ------------ ------ ---- ------ ------ ----- -------- ------- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FUND ANNUAL EXPENSES
(as a percentage of fund average net assets)
Investment Management Fee .65% .50% .60% .40% .75% .55% .75% .75% .98% 1.27%
Other Operating Expenses
(After Expense
Reimbursement)** .15% .15% .15% .15% .35% .15% .25% .25% .17% .27%
Total Fund Annual Expenses. .80% .65% .75% .55% 1.10% .70% 1.00% 1.00% 1.15% 1.54%
Example
If you surrender your Contract at the end of the applicable time period:
You would pay the following expenses on a $1,000 investment assuming 5% annual
return on assets:
1 year................ $ 79 $ 78 $ 79 $ 77 $ 82 $ 78 $ 81 $81 $ 83 $ 86
3 years............... 112 108 111 105 121 109 118 118 122 133
5 years............... 145 138 143 133 160 141 155 155 163 181
10 years.............. 266 251 261 241 296 256 286 286 301 339
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:
1 year................ $ 79 $ 78 $ 79 $ 77 $ 82 $ 78 $ 81 $81 $ 83 $ 86
3 years............... 112 108 111 105 121 109 118 118 122 133
5 years............... 125 117 122 112 140 120 135 135 142 162
10 years.............. 266 251 261 241 296 256 286 286 301 339
If you do not surrender your Contract: You would pay the following expenses on a
$1,000 investment assuming 5% annual return on assets:
1 year................ $ 24 $ 22 $ 23 $ 21 $ 27 $ 23 $ 26 $26 $ 27 $ 31
3 years............... 73 69 72 66 82 70 79 79 84 95
5 years............... 125 117 122 112 140 120 135 135 142 162
10 years.............. 266 251 261 241 296 256 286 286 301 339
</TABLE>
* A sales charge is taken from the proceeds when a Contract is surrendered
or when an amount is withdrawn, if assets have not been held under the Contract
for a certain period of time. If a surrender or withdrawal is made during the
first Contract year, a sales charge will apply to the total amount withdrawn.
After the first year, 10% of the Contract Value at the last anniversary may be
withdrawn each year free of sales charge. (See "Deductions and Charges--Sales
Charges".)
**Each Series pays a portion or all of its total operating expenses other
than the management fee. The Growth, Bond, Total Return, Money Market and
Balanced Series will pay up to .15%; the International Series will pay up to
.40%; the Real Estate and Strategic Theme Series will pay up to .25%; the Wanger
U.S. Small Cap Series will pay up to .17%; and the Wanger International Small
Cap Series will pay up to .27%. Absent expense reimbursement these listed Series
would have paid (or would be expected to pay) .80%, .72%, .75%, .58%, .70%,
1.10%, 1.00%, 1.00%, 1.15% and 1.54% in total operating expenses respectively.
***The inclusion of this Sub-account began on May 1, 1995. Accordingly,
annualized expenses have been projected for the fiscal period ending December
31, 1995.
+The inclusion of this Sub-account began on January 29, 1996. Accordingly,
annualized expenses have been projected for the fiscal period ending December
31, 1996.
4
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The purpose of the table set forth above is to assist the Contract Owner in
understanding the various costs and expenses that a Contract Owner will bear
directly or indirectly. The table reflects expenses of the Account as well as
the Funds. (See "Deductions and Charges" in this Prospectus and in the Fund
Prospectuses)
Premium taxes, which are not reflected in the table above, may apply. Any
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 are currently imposed by certain states on the
Contracts and range from 0% to 3.5% of premiums paid. (See "Deductions and
Charges--Premium Tax".)
The Example should not be considered a representation of past or future
expenses and actual expenses may be greater or less than those shown. The $35
annual administrative charge is reflected in the Example as $1.75 since the
average Contract account size is greater than $1,000 and the expense effect is
reduced accordingly. (See "Deductions and Charges").
PHL VARIABLE ACCUMULATION ACCOUNT
FINANCIAL HIGHLIGHTS
ACCUMULATION UNIT VALUES
(Selected data for an Accumulation Unit Outstanding Throughout the Indicated
Period)
The Sub-accounts commenced operations as of the date of this Prospectus;
therefore, data for these Sub-accounts is not yet available.
PERFORMANCE HISTORY
From time to time the Account may include the performance history of any or
all Sub-accounts in advertisements, sales literature or reports. Performance
information may be expressed as yield and effective yield of the Money Market
Sub-account, as yield of the Bond Sub-account and as total return of any
Sub-account. For the Bond Sub-account, 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 Sub-account advertises its total return, it will usually be calculated
for one year, five years, and ten years or since inception if the Sub-account
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 Sub-account 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.
The Sub-accounts below are based on the actual performance of the underlying
Funds and became available for investment on July 31, 1995 except for Strategic
Theme, which became available on January 29, 1996. The standardized average
annual total return quotations show the investment performance the Sub-accounts
would have achieved (reduced by the applicable charges) had they been available
to invest in shares of the Fund for the periods quoted.
Average Annual Total Return
For the Period Ended 12/31/94
Commencement
Date of Corre-
Sub account sponding Fund 1 Year 5 Years 10 Years Life of Fund
- ------------ ------------ ------ ------- -------- ------------
Bond...... 1/1/83 (11.98) 6.68 8.57 8.30
Balanced.. 5/1/92 (9.50) N/A N/A 2.15
Total Return 9/17/84 (8.17) 8.57 11.28 10.71
Growth.... 1/1/83 (5.49) 12.63 15.52 16.16
International 5/1/90 (6.80) N/A N/A 4.03
Annual Total Return*
- --------------------
Total
Year Bond Balanced Return Growth International
--- ---- -------- ------ ------ -------------
1983....... 4.56 N/A N/A 31.10 N/A
1984....... 9.82 N/A (1.51) 9.16 N/A
1985....... 18.97 N/A 25.61 33.09 N/A
1986....... 17.67 N/A 14.11 18.83 N/A
1987....... (0.30) N/A 11.02 5.47 N/A
1988....... 8.98 N/A 0.94 2.50 N/A
1989....... 6.76 N/A 18.28 34.35 N/A
1990....... 3.78 N/A 4.32 2.62 (8.98)
1991....... 17.96 N/A 27.56 40.81 18.11
1992....... 8.58 8.43 9.15 8.79 (14.03)
1993....... 14.35 7.13 9.50 18.08 36.59
1994....... (6.78) (4.17) (2.75) 0.08 (1.31)
* Sales charges have not been deducted from the Annual Total Returns
THESE RATES OF RETURN ARE NOT AN ESTIMATE OR GUARANTEE
OF FUTURE PERFORMANCE
Current yield for the Money Market Sub-account is based upon the income
earned by the Sub-account 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 Sub-account 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 Sub-account used for illustration
purposes are based on the consideration of a hypothetical participant's account
having a balance of exactly one Unit at the beginning of a seven day period,
which period will end on the date of the most recent financial statements. The
yield for the Sub-account during this seven day period will be the change in the
value of the hypothetical participant's account's original Unit. The Money
Market Sub-account became available for investment on July 31, 1995. The yield
quotation below is based on the actual yield of the underlying Fund based on a
seven day period ending December 31, 1994.
5
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Example:
Value of hypothetical pre-existing account with exactly one unit at the
beginning of the period: 1.000000
Value of the same account (excluding capital changes)
at the end of the seven day period: 1.000774
Calculation:
Ending account value 1.000774
Less beginning account value 1.000000
Net change in account value 0.000774
Base period return:
(adjusted change/beginning account value 0.000774
Current yield = return x (365/7) =
4.03% Effective yield = [(1 + return)365/7] - 1 = 4.12%
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 Sub-account'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 Stock Index, and the Europe
Australia Far East Index, and may also be compared to the performance of the
other variable life accounts as reported by services such as Lipper Analytical
Services, Inc. ("Lipper"), CDA Investment Technologies, Inc. ("CDA") and
Morningstar, Inc. or in other various publications. Lipper and CDA are widely
recognized independent rating/ranking services. A Sub-account's performance may
also be compared to that of other investment or savings vehicles.
The Fund's Annual Report, available upon request and without charge, contains
a discussion of the performance of the Fund and a comparison of that performance
to a securities market index.
SUMMARY
The individual deferred accumulation annuity contract ("Contract") described
in this Prospectus presents 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 PHL Variable
Accumulation Account ("Account") consists of several Sub-accounts, which invest
their assets in specified Series of The Phoenix Edge Series Fund and the Wanger
Advisors Trust (the "Funds"). Each Series has a distinct investment objective.
You choose the Sub-accounts you wish to invest in among the available
Sub-accounts and/or the Guaranteed Interest Account when you make your purchase
payments under the Contracts. You may also transfer amounts held under the
Contracts among the available Sub-accounts and/or the Guaranteed Interest
Account. 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 PHL Variable Insurance Company.
The Contracts are eligible for purchase as non-tax qualified retirement plans
by individuals. The Contracts are also 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) individual retirement account plans satisfying the requirements of Section
408 of the Code (IRA), 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 Sub-account(s) and/or are deposited in the
Guaranteed Interest Account, as chosen by the Owner. (See "PURCHASE OF CON-
TRACTS" and "THE ACCUMULATION PERIOD".)
Is there a guaranteed option?
Yes. A Contract Owner may elect to have payments allocated to
the Guaranteed Interest Account. Amounts allocated to the GIA earn
a fixed rate of interest and PHL Variable may also, in its sole
discretion, credit excess interest. (See Appendix A.)
What are the investment objectives of the Series of the Funds?
The Phoenix Edge Series Fund
The investment objective of the Bond Series is to seek long-term total return
by investing in a diversified portfolio of high yield (high risk) and high
quality fixed income securities.
The investment objective of the Money Market Series is to provide maximum
current income consistent with capital preservation and liquidity. The Money
Market Series will invest exclusively in high quality money market instruments.
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 will invest principally in common stocks of corporations believed
by management to offer growth potential.
The investment objective of the Total Return Series is to realize as high a
level of total rate of return over an extended period of time as is considered
consistent with prudent investment risk. The Total Return Series will invest in
stocks, bonds and money market instruments in accordance with the Investment
Adviser's appraisal of investments most likely to achieve the highest total rate
of return.
The investment objective of the International Series is to seek a high total
return consistent with reasonable risk. The International Series intends to
invest 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.
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The investment objective of the Balanced Series is to seek reasonable income,
long-term capital growth and conservation of capital. The Balanced Series
intends to invest based on combined considerations of risk, income, capital
enhancement and protection of capital value.
The investment objective of the Real Estate Series is to seek capital
appreciation and income with approximately equal emphasis. It intends under
normal circumstances to invest 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.
The investment objective of the Strategic Theme Series is to seek long-term
appreciation of capital. This Series seeks to identify securities benefiting
from long-term trends present in the U.S. and abroad. The Series intends to
invest primarily in common stocks believed by the Adviser to have substantial
potential for capital growth. Since many trends may be early in their
development and no history growth patterns are available, securities owned may
present a high degree of risk.
Wanger Advisors Trust
The investment objective of the Wanger U.S. Small Cap Series
("U.S. Small Cap Series") is to provide long-term growth. The U.S.
Small Cap will invest primarily in securities of U.S. companies with
total common stock market capitalization of less than $1 billion.
The investment objective of the Wanger International Small Cap Series
("International Small Cap Series") is to provide long-term growth. The
International Small Cap will invest primarily in securities of non-U.S.
companies with total common stock market capitalization of less than $1
billion.
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.
If a withdrawal or surrender is made during the first year that a Contract is
in existence, a sales charge will apply to the total amount that is withdrawn.
After the first year, 10% of the value of the Contract at the last anniversary
may be withdrawn each year free of sales charge. A deduction for sales charges
expressed as a percent age of the amount withdrawn in excess of the 10%
allowable amount is as follows:
Age of Deposit in
Complete Years: 0 1 2 3 4 5 6 7 and over
Sales Charge to be Applied 7% 6% 5% 4% 3% 2% 1% 0%
In the event that the Annuitant dies before the date that annuity payments
will commence, no sales charge will be imposed.
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 and
an annual administrative charge assessed against the Account. The mortality and
expense risk fee is 1.25% (approximately 0.40% for mortality risks and
approximately 0.85% for expense risks). The daily administrative fee is equal to
0.125% on an annual basis.
The mortality and expense risk fee and the daily administrative fee are
deducted from the aggregate average daily accumulated values of the Sub-accounts
but are not deducted from values held in the Guaranteed Interest Account.
The Annual Administrative Charge is generally $35, and is deducted each year
(or any part thereof) under each Contract. A reduced annual administrative
charge may apply. This charge is deducted on the Contract Anniversary Date from
each Sub-account and/or the Guaranteed Interest Account on a pro-rata basis, and
is not subject to increase, but may be subject to decrease.
Are there any other charges or deductions?
In most states, premium taxes are imposed when a Contract is annuitized
rather than when premium payments are made by the Contract Owner. PHL Variable
will reimburse itself on the date of a partial withdrawal, surrender of the
Contract, Maturity Date or payment of death proceeds (see "Premium Tax"). For a
more complete description of the fees chargeable to the Account, see "DEDUCTIONS
AND CHARGES".
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.
Each Series pays a portion or all of its total operating expenses other than
the management fee; the Growth, Bond, Total Return, Money Market and Balanced
Series will pay up to .15%; the International will pay up to .40%; the Real
Estate and Strategic Theme Series will pay up to .25%; the U.S. Small Cap Series
will pay up to .17%; and the International Small Cap Series will pay up to .27%
of its total net assets.
What are the minimum initial and subsequent purchase
payments?
For non-tax qualified plans and IRA's, the following minimum purchase
payments apply (unless investments are made pursuant to a bank draft investment
program):
Initial minimum per Contract: $1,000
Subsequent minimum per Contract: $25
For Contracts issued in connection with Individual Retirement Accounts or
pursuant to a bank draft investment program, the
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<PAGE>
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 individual retirement accounts, a minimum annual premium of $1,000 must be
paid.
May I allocate my purchase payments among available options?
Yes. You may choose the amount of each purchase payment to be directed to
each Sub-account and/or to the Guaranteed Interest Account, provided that the
minimum initial purchase payment requirements have been met (see "PURCHASE OF
CONTRACTS").
May I transfer amounts allocated to a Sub-account or the Guaranteed Interest
Account?
Yes. You may transfer some or all of the Contract Value among one or more
available Sub-accounts and/or the Guaranteed Interest Account provided that the
minimum initial purchase payment requirements have been met. Also, if elected,
the Temporary Money Market Allocation Amendment provides that no transfers may
be made until the termination of the Free Look Period. PHL Variable may 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 Guaranteed Interest Account as
described in Appendix A.
Does the Contract provide for payment upon death?
The Contract provides that if the Owner and the Annuitant are the same and
the Owner/Annuitant dies before annuity payments begin and there is no surviving
joint Owner, payment to the Owner/Annuitant's beneficiary will be made and no
surrender charge will be imposed. The Contract also provides for payment upon
death after the Contract Maturity Date (see "Payment Upon Death Before Maturity
Date" and "Payment Upon Death After Maturity Date").
Is there a short-term cancellation right?
An Owner may surrender a Contract for any reason within 10 days after its
receipt and receive in cash the adjusted value of the initial purchase payment.
The Owner may receive more or less than the initial payment depending on
investment experience within the Sub-account 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 Guaranteed Interest
Account, 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 Guaranteed Interest Account 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 PHL Variable. The fixed
payment schedule is a part of the Contract and the Owner may also be given the
opportunity to choose another annuity option available from PHL Variable 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. Certain limitations apply to Contracts held under 403(b)
plans (see "Qualified Plans; Tax-Sheltered Annuities"). There may be a 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.
THE VARIABLE ACCUMULATION ANNUITY
The individual deferred variable accumulation annuity contract (the
"Contract") issued by PHL Variable may be significantly different from a fixed
annuity contract in that, unless the Guaranteed Interest Account is selected, it
is the Owner and Annuitant under a Contract who assume the risk of investment
gain or loss rather than PHL Variable. To the extent that payments are not
allocated to the Guaranteed Interest Account, the amounts which will be
available for annuity payments under a Contract will depend on the investment
performance of the amounts allocated to the Sub-accounts of the PHL Variable
Accumulation Account (the "Account"). Upon the maturity of a Contract, the
amounts held under a Contract will continue to be invested in the Account and
monthly annuity payments will vary in accordance with the investment experience
of the selected Sub-accounts. However, a fixed annuity may be elected, in which
case PHL Variable 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 accumulated value
among the Guaranteed Interest Account or the Bond Sub-account, Money Market
Sub-account, Growth Sub-account, Total Return Sub-account, International
Sub-account, Balanced Sub-account, Real Estate Sub-account, Strategic Theme
Sub-account, U.S. Small Cap Sub-account and the International Small Cap
Sub-account.
PHL VARIABLE AND THE PHL VARIABLE ACCUMULA-
TION ACCOUNT
PHL Variable is a wholly-owned indirect subsidiary of Phoenix Home Life
Mutual Insurance Company. Its Executive Office is at One American Row, Hartford,
Connecticut 06115 and its main administrative office is at 100 Bright Meadow
Boulevard, Enfield, Connecticut 06083-1900. PHL Variable is a Connecticut stock
company formed on April 24, 1981. On December 31, 1994 it had total assets of
$10.5 million. PHL Variable sells variable annuity contracts through its own
field force of agents and through brokers. Its operations are currently
conducted in 34 states.
On December 7, 1994, PHL Variable established the Account, a separate account
created under the insurance laws of Connecticut. The Account is registered with
the Securities and Exchange Commission ("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 PHL Variable.
Under Connecticut law, all income, gains or losses of the Account, whether
realized or not, must be credited to or charged against the amounts placed in
the Account without regard to the other income, gains and losses of PHL
Variable. The assets of the Account may not be charged with liabilities arising
out of any other business that PHL Variable may conduct. Obligations under the
Contracts are obligations of PHL Variable.
Contributions to the Guaranteed Interest Account are not invested in the
Account; rather, they become part of the general account of PHL Variable (the
"General Account"). The General Account supports all insurance and annuity
obligations of PHL Variable 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 Guaranteed Interest Account, see Appendix A.
THE PHOENIX EDGE SERIES FUND
Certain Sub-accounts of the Account invest in corresponding
Series of The Phoenix Edge Series Fund. The investment adviser of
all of the Series (except the Real Estate Sub-account) is Phoenix
Investment Counsel, Inc. ("PIC"). The investment adviser of the Real
Estate Series is Phoenix Realty Securities, Inc. ("PRS"). The
fundamental investment objective of each of the Series of the Fund
is as follows:
(1) Bond Series: The investment objective of the Bond Series is to seek
long-term total return by investing in a diversified portfolio of high
yield (high risk) and high quality fixed income securities. For a
discussion of the risks associated with investing in high yield bonds,
please see the accompanying Fund prospectus.
(2) 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 will invest exclusively in high
quality money market instruments.
(3) 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 will invest principally in
common stocks of corporations believed by management to offer growth
potential.
(4) Total Return Series: The investment objective of the Total Return Series
is to realize as high a level of total rate of return over an extended
period of time as is considered consistent with prudent investment risk.
The Total Return Series will invest in stocks, bonds and money market
instruments in accordance with the Investment Adviser's appraisal of
investments most likely to achieve the highest total rate of return.
(5) International Series: The International Series seeks as its investment
objective a high total return consistent with reasonable risk. It intends
to achieve its objective by investing 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. Investments may be made for capital
growth or for income or any combination thereof for the purpose of
achieving a high overall return.
(6) 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 intends to invest based on combined
considerations of risk, income, capital enhancement and protection of
capital value.
(7) Real Estate Series: The investment objective of the Real Estate Series is
to seek capital appreciation and income with approximately equal
emphasis. It intends under normal circumstances to invest in marketable
securities of publicly traded real estate investment trust (REITs) and
companies that operate, develop, manage and/or invest in real estate
located primarily in the United States.
(8) Strategic Theme Series: The investment objective of the Strategic Theme
Series is to seek long-term appreciation of capital through investing in
securities of companies that the adviser believes are particularly well
positioned to benefit from cultural, demographic, regulatory, social or
technological changes worldwide.
WANGER ADVISORS TRUST
The investment adviser of the U.S. Small Cap and International Small Cap
Series is Wanger Asset Management, L.P. The fundamental investment objective of
each of the Series is as follows:
(1) 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 will invest primarily in securities of U.S.
companies with total common stock market capitalization
of less than $1 billion.
(2) International Small Cap Series: The investment objective
of the International Small Cap Series is to provide
9
<PAGE>
long-term growth. The International Small Cap will invest
primarily in securities of non-U.S. companies with total
common stock market capitalization of less than $1 billion.
Each Series will be subject to the market fluctuations and risks inherent in
the ownership of any security and there can be no assurance that any Series'
stated investment objective will be realized.
Shares of the Funds may be sold to other separate accounts of PHL Variable or
its affiliates or of other insurance companies funding variable annuity or
variable life insurance contracts. It is conceivable that it may be
disadvantageous for variable life insurance separate accounts and variable
annuity separate accounts to invest in the Funds simultaneously. Although
neither PHL Variable nor the Funds currently foresee any such disadvantages
either to variable annuity Contract Owners or to variable life insurance
policyowners, the Funds' Trustees intend to monitor events in order to identify
any material conflict between variable annuity Contract Owners and variable life
insurance policyowners and to determine what action, if any, should be taken in
response thereto. Material conflicts could result from, for example, (1) changes
in state insurance laws, (2) changes in Federal income tax laws, (3) changes in
the investment management of any portfolio of a Fund, or (4) differences in
voting instructions between those given by variable life insurance policyowners
and those given by variable annuity Contract Owners.
For additional information concerning the Funds, 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 Individual Retirement
Accounts (IRAs), the minimum initial purchase payment is $25 and for contracts
purchased in connection with tax-qualified or employer sponsored plans, a
minimum annual payment of $1,000 is required. In addition, a Contract Owner may
authorize his bank to draw $25 or more from his personal checking account
monthly to purchase Units in any available Sub-account or in the Guaranteed
Interest Account. 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. Each subsequent purchase payment under a
Contract must be at least $25.
Generally, a Contract may not be purchased with respect to a proposed
Annuitant who is eighty-one years of age or older. Total purchase payments in
excess of $1,000,000 cannot be made without the permission of PHL Variable.
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
Sub-account or to the Guaranteed Interest Account, or a combination thereof, in
the proportion specified in the application for the Contract or as indicated by
the Owner from time to time. Changes in the allocation of purchase payments will
be effective as of receipt by Variable Products Operations of notice of election
in a form satisfactory to PHL Variable 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 PHL Variable within those states and the insurance tax laws of those states.
PHL Variable will pay any premium tax due and will only reimburse itself upon
the earlier of partial withdrawal, surrender of the Contract, Maturity Date or
payment of death proceeds. For a list of states and premium taxes, see Appendix
B to this Prospectus.
Sales Charges
A deduction for sales charges (also referred to in this Prospectus as
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 Annuity Option 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, during the first year a Contract
is in existence, the deduction applies against the total amount withdrawn. After
the first anniversary of the Contract, a withdrawal of up to 10% of the amount
held under a Contract as of the previous Contract anniversary may be made each
year without imposition of a sales charge. The deduction for sales charges,
expressed as a percentage of the amount redeemed in excess of the 10% allowable
amount, is as follows:
Age of Deposit in Contingent Deferred
Complete Years from Sales Charge as a
Payment Date Unit Percentage of Amount
Released was Credited Withdrawn
- --------------------- ------------------
0 7%
1 6%
2 5%
3 4%
4 3%
5 2%
6 1%
7 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 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. Sales charges imposed in
connection with partial surrenders will be deducted from the Sub-accounts and
the Guaranteed Interest Account on a pro-rata basis. Any distribution costs not
paid for by sales charges will be paid by PHL Variable from the assets of the
General Account.
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<PAGE>
Charges For Mortality and Expense Risks
While fixed annuity payments to Annuitants will reflect the investment
performance of the applicable Series of the Funds 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 PHL Variable over the expense charges provided for in the
Contracts. PHL Variable 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 risk, PHL Variable 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.
PHL Variable charges each Sub-account the daily equivalent of 1.25% on an
annual basis of the current value of the Sub-account's net assets for mortality
and expense risks assumed. (See the Contract's Schedule Pages). No mortality and
expense risk charge is deducted from the Guaranteed Interest Account. If the
percentage charges prove insufficient to cover actual insurance underwriting
costs and excess administrative costs, then the loss will be borne by PHL
Variable; conversely, if the amount deducted proves more than sufficient, the
excess will be a profit to PHL Variable. Any such profit may be used, as a part
of PHL Variable's General Account's assets, to meet sales expenses, if any,
which are in excess of sales commission revenue generated from any sales
charges. PHL Variable has concluded that there is a reasonable likelihood that
the distribution financing arrangement being used in connection with the
Contracts will benefit the Account and the Contract Owners.
Charges For Administrative Services
PHL Variable is responsible for administering the Contract. In this
connection, PHL Variable, 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 Securities and Exchange Commission,
prepares and distributes notices and reports to Owners, and the like. PHL
Variable also reimburses Phoenix Equity Planning Corporation for any expenses
incurred by it as "principal underwriter." All organizational expenses of the
Account are paid by PHL Variable.
To cover its fixed cost of administration, such as preparation of billings
and statements of account, PHL Variable charges each Contract $35 each year
prior to the Contract's Maturity Date. A reduced charge may apply. For Contracts
issued under a tax-qualified plan other than an IRA, a reduced annual
administrative charge of $15 may apply. For Contracts with a Contract Value of
at least $50,000 there is no annual administrative charge. This cost-based
charge is deducted from each Sub-account and/or the Guaranteed Interest Account
holding the assets of the Owner or on a pro-rata basis from two or more
Sub-accounts or the Guaranteed Interest Account 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, the entire annual administrative charge of $35 is deducted regardless
of when the surrender occurs.
PHL Variable also charges each Sub-account available through a Contract the
daily equivalent of 0.125% on an annual basis of the accumulated value of the
Sub-account to cover its variable costs of administration, such as printing and
distribution of Contract Owner meetings. This cost-based fee is not deducted
from the Guaranteed Interest Account.
PHL Variable may reduce the annual administrative charges for Contracts
issued under group or sponsored arrangements such as Internal Revenue Code
Section 403(b) or 457 Plans. Generally, administrative costs per Contract vary
with the size of the group or sponsored arrangement, its stability as indicated
by its term of existence and certain characteristics of its members, the
purposes for which the Contracts are purchased and other factors. The amounts of
reductions will be considered on a case-by-case basis but will be applied in a
uniform, nondiscriminatory manner that reflects the reduced administrative costs
expected as a result of sales to a particular group or sponsored arrangement.
No sales or annual administrative charges will be deducted for
Contracts sold to registered representatives of the principal under
writer or to officers, directors and employees of PHL Variable or its
affiliates and their spouses; or to employees or agents who retire
from PHL Variable or its affiliates or Phoenix Equity Planning
Corporation, or its affiliates or to registered representatives of
broker/dealers with whom Phoenix Equity Planning Corporation 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 as summarized in the table below
Phoenix Investment Counsel, Inc.
--------------------------------
Rate for First Rate for Next Rate for Excess Over
Series $250,000,000 $250,000,000 $500,000,000
- ------ ------------ ------------- -------------------
Money Market...... .40% .35% .30%
Bond.............. .50% .45% .40%
Balanced.......... .55% .50% .45%
Total Return...... .60% .55% .50%
Growth............ .70% .65% .60%
International .75% .70% .65%
Strategic Theme... .75% .70% .65%
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<PAGE>
Phoenix Realty Securities, Inc.
-------------------------------
Rate for First Rate for Next Rate for Excess Over
Series $1,000,000,000 $1,000,000,000 $2,000,000,000
- ------ -------------- -------------- --------------------
Real Estate.... .75% .70% .65%
Wanger Asset Management, L.P.
-----------------------------
Rate for First Rate for Next Rate for Excess
Series $1,000,000,000 $1,000,000,00O Over $2,000,000,000
- ------ -------------- -------------- -------------------
U.S. Small Cap.. .98% .95% .90%
International
Small Cap....... 1.27% 1.20% 1.10%
Each Series pays a portion or all of its total operating expenses other than
the management fee; the Growth, Bond, Total Return, Money Market and Balanced
Series will pay up to .15%; the International Series will pay up to .40%; the
Real Estate and Strategic Theme Series will pay up to .25%; the U.S. Small Cap
Series will pay up to .17%; and the International Small Cap Series will pay up
to .27% of its total net assets.
These Fund charges and other expenses are described more fully in the
accompanying Fund prospectuses.
THE ACCUMULATION PERIOD
Accumulation Units
Initial purchase payments will be applied within two days if the application
for a Contract is complete. If an incomplete application is completed within
five business days of receipt by Variable Products Operations, the initial
purchase payment will be applied within two days of the completion of the
application. In the event that Variable Products Operations does not accept the
application within five business days or if an order form is not completed
within five business days of receipt by Variable Products Operations, then the
purchase payment will be immediately returned. If the Guaranteed Interest
Account is chosen, additional purchase payments are deposited on the date of
receipt of such purchase payment at Variable Products Operations. If one or more
of the Sub-accounts is chosen, additional purchase payments are applied to the
purchase of Accumulation Units of the Sub-account(s) chosen, at the value of
such Units next determined after the receipt of such purchase payment at
Variable Products Operations. The number of Accumulation Units of a Sub-account
purchased with a specific purchase payment will be determined by dividing the
applied purchase payment by the value of an Accumulation Unit in that
Sub-account next determined after receipt of the purchase payment. The value of
the Accumulation Units of a Sub-account will vary depending upon the investment
performance of the applicable Series of the Fund, the fee of the Fund's
investment adviser and the charges and deductions made against the Sub-account.
Accumulation Unit Values
At any date prior to the Maturity Date of the Contract, the total value of
the Accumulation Units in a Sub-account 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 Sub-account
credited under each Contract and their current value will be reported to the
Owner at least annually.
Transfers
A Contract Owner may, at any time but no later than 30 days prior to the
Maturity Date of a Contract, elect to transfer all or any part of the Contract
Value among one or more Sub-accounts or the Guaranteed Interest Account. Any
such transfer from a Sub-account will result in the redemption of Accumulation
Units and, if another Sub-account is selected, in the purchase of Accumulation
Units on the basis of the respective values next determined after the receipt by
Variable Products Operations of written notice of election in a form
satisfactory to PHL Variable. A transfer among Sub-accounts or the Guaranteed
Interest Account does not automatically change the payment allocation schedule
of a contract.
A Contract Owner may also request transfers and changes in payment
allocations among available Sub-accounts or the Guaranteed Interest Account by
calling 800-447-4312 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 will
also be accepted on behalf of the Contract Owner from his or her registered
representative. Telephone transfer instructions and change in payment allocation
instructions will be recorded on tape; however, PHL Variable will not be able to
verify the authenticity of any order received and will not be liable for any
loss incurred as a result of acting upon telephone transfer or change in payment
allocation instructions unless such loss results from the erroneous processing
of a telephone instruction. 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 may also elect to transfer funds automatically among the
Sub-accounts or the Guaranteed Interest Account on a monthly, quarterly,
semi-annual 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 semi-annually, or $300 annually. A Contract Owner must have
an initial value of $2,000 in the Guaranteed Interest Account or the Sub-account
that funds will be transferred from, and if the value in that Sub-account or the
Guaranteed Interest Account 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 Sub-Account or the Guaranteed
Interest Account, but may be allocated to multiple Sub-accounts. Under the
Systematic Transfer Program, Contract Owners may make multiple transfers of
approximately equal amounts per Contract year from the Guaranteed Interest
Account over a minimum 18 month period.
All transfers under the Systematic Transfer Program will be executed on the
basis of the respective values as of the first of the month rather than on the
basis of the respective values next determined after receipt of the transfer
request. If the first of the month falls on a holiday or weekend, then the
transfer will be processed on the next succeeding business day.
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<PAGE>
Unless PHL Variable agrees otherwise or the Systematic Transfer Program has
been elected, a Contract Owner may make only one transfer per Contract year from
the Guaranteed Interest Account. Non-systematic transfers from the Guaranteed
Interest Account will be effectuated on the date of receipt by Variable Products
Operations except as otherwise may be requested by the Contract Owner. For
non-systematic transfers, the amount that may be transferred from the Guaranteed
Interest Account at any one time cannot exceed the greater of $1,000 or 25% of
the Contract Value in the Guaranteed Interest Account at the time of transfer.
PHL Variable reserves the right not to accept transfer instructions from
registered representatives acting under powers of attorney for multiple Contract
Owners unless the registered representative's broker-dealer and PHL Variable
have entered into a third party transfer service agreement.
No sales charge will be assessed when a transfer is made. The date a payment
was credited for the purpose of calculating the sales charge will remain the
same notwithstanding the transfer. Currently, there is no charge for transfers;
however, the Account reserves the right to charge a transfer fee of $10.00 per
transfer after the first two in each Contract year to defray administrative
costs. Currently, unlimited transfers are permitted; however, the Account
reserves the right to limit the number of transfers made during each Contract
year a Contract is in existence. When the temporary Money Market Allocation
Amendment has been elected, no transfers may be made until the end of the free
look period (See "Free Look Period"). However, Contract Owners will be permitted
at least six transfers during each Contract year. THERE ARE ADDITIONAL
RESTRICTIONS ON TRANSFERS FROM THE GUARANTEED INTEREST ACCOUNT AS DESCRIBED
ABOVE AND IN APPENDIX A.
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. After the Contract has been owned for one year, and
prior to the Maturity Date, the Contract Owner may withdraw up to 10% of the
Contract Value (as of the previous Contract anniversary) annually, either in a
single sum or in equal monthly payments by sending a signed written request for
withdrawal to Variable Products Operations. 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
Sub-account will be redeemed at their value next determined after the receipt by
Variable Products Operations of a written notice in a form satisfactory to PHL
Variable. Unless the Owner designates otherwise, Accumulation Units redeemed in
a partial withdrawal will be redeemed in each Sub-account in the same proportion
as the value of the Accumulation Units of the Contract is then allocated among
the Sub-accounts. Also, Contract Values in the Guaranteed Interest Account will
be withdrawn in a partial withdrawal in the same proportion as the Contract
Value is then allocated to the Guaranteed Interest Account, 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
Sub-account. 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.
Any request for a withdrawal from, or complete surrender of, a Contract
should be mailed to Variable Products Operations, PHL Variable Insurance
Company, 101 Munson Street, PO Box 942, Greenfield, Massachusetts 01302-0942.
Lapse of Contract
If on any Valuation Date the Contract Value is zero, or the premium tax
reimbursement due on 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, PHL Variable will notify the
Contract Owner in writing that the Contract has lapsed.
Payment Upon Death Before Maturity Date
If the Owner is the Annuitant and dies before the 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 prior to the first Contract anniversary
following the Annuitant's 85th birthday and during the first 7 years, 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 Variable
Products Operations. If the death occurred prior to the first Contract
anniversary following the Annuitant's 85th birthday and during Contract years 8
through 14 (or during any subsequent 7 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 7 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
Variable Products Operations. In Contract years following the Annuitant's 85th
birthday, the death benefit is the Contract Value next determined following
receipt of a certified copy of the death certificate at Variable Products
Operations.
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, PHL Variable 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").
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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").
THE ANNUITY PERIOD
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
Sub-account selected, are made monthly to the Annuitant for life and, if the
Annuitant dies within ten years after the Maturity Date, the beneficiary will be
paid the payments remaining in the ten-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, PHL
Variable 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, PHL Variable may also make a single sum payment equal to the total Contract
Value on the date the initial payment would be payable, in place of all other
benefits provided by the Contract, or, make periodic payments quarterly,
semi-annually 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 fifth Contract anniversary or later
than the Contract anniversary nearest the Annuitant's ninety-fifth birthday
unless the Contract is issued in connection with certain qualified plans.
The Maturity Date election shall be made by written notice and must be
received by Variable Products Operations thirty 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 Tax-Sheltered Annuity, a
Keogh Plan or an Individual Retirement Account (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
automatically be 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 Sub-account to be credited is
based on the value of the Accumulation Units in that Sub-account 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 Sub-account 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 Sub-account is
better or worse than the assumed investment return. The assumed investment rate
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 Statement of Additional
Information.
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 Variable Products Operations on or
before the Maturity Date of the Contract, elect any of the other annuity payment
options described below. No surrender charge will be assessed under any annuity
option, 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.
PHL Variable deducts a daily charge for mortality and expense risks and a
daily administrative fee from Contract Values held in the Sub-accounts (see
"Charges For Mortality and Expense Risks"). Therefore, electing Option K will
result in a deduction being made even though PHL Variable 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.
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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 to the survivor.
The amount to be continued to the survivor is 100% 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 named beneficiary
until the amount applied to purchase the annuity has been distributed.
Option F--Joint and Survivor Life Annuity with 10 Year
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 to the survivor.
If the survivor dies prior to the end of the 10 year period, the annuity income
will continue to the named beneficiary until the end of the 10 year period
certain.
Under Option F, the joint annuitant must be named at the time the option is
elected and cannot be changed. The joint annuitant must have reached an adjusted
age of 40, as defined in the Contract.
Option G--Payments For Specified Period
Provides equal income installments for a specified period of years whether
the Annuitant lives or dies. Any specified whole number of years from 5 to 30
years may be elected.
Option H--Payments of Specified Amount
Provides equal installments of a specified amount over a period of at least 5
years. The specified amount may not be greater than the total annuity amount
divided by five annual installment payments. If the Annuitant dies prior to the
end of the elected period certain, annuity payments will continue to the named
beneficiary until the end of the elected period certain.
Option I--Variable Payment Life Annuity With Ten
Year Period Certain
Unless another annuity option has been elected, this option will
automatically apply to any Contract proceeds payable on the Maturity Date. It
provides a variable payout monthly annuity based on the life of the Annuitant.
In the event of the death of the Annuitant, the annuity payments are made to the
beneficiary until the end of the ten year period. The ten year period provides a
total of 120 monthly payments. Payments will vary as to dollar amount, based on
the investment experience of the Sub-accounts 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 ten year period
certain. Payments will vary as to dollar amount, based on the investment
experience of the Sub-accounts to which proceeds are applied. 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 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.
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
less any applicable contingent deferred sales charge at anytime. Upon the death
of the Annuitant (and joint annuitant, if there is a joint annuitant), the
remaining Contract Value 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
PHL Variable may offer other annuity options at the Maturity Date of a
Contract. In addition, in the event that current settlement rates for Contracts
are more favorable than the applicable rates guaranteed under the Contract, the
current settlement rates shall be used in determining the amount of any annuity
payment under the Annuity Options above.
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Other Conditions
Federal income tax requirements currently applicable to Keogh and Individual
Retirement Account 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.
Federal income tax requirements also provide that participants in qualified
plans or IRAs must begin minimum distributions by April 1 of the year following
the one in which they attain age 70 1/2. 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 an LED, if a distribution is required in the first Contract year, the
amount of the distribution will be subtracted from the first year payments. In
subsequent Contract years, under the LED program, 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"). In any Contract year, any amounts withdrawn that have not been held
under a Contract for at least six years and are in excess of the greater of the
minimum distribution and the 10% free available amount will be subject to any
applicable sales charge.
If the initial monthly annuity payment under an Annuity Option would be less
than $20, PHL Variable may make a single sum payment equal to the Contract Value
on the date the initial payment would be payable, in place of all other benefits
provided by the Contract, or, may make periodic payments quarterly,
semi-annually or annually in place of monthly payments.
Payment Upon Death After Maturity Date
If an Owner who is also the Annuitant dies on or after the Maturity Date,
except as may otherwise be provided under any supplementary contract between the
Owner and PHL Variable, PHL Variable 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, PHL Variable 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, PHL Variable 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
Valuation Date--A Valuation Date is every day the New York Stock Exchange is
open for trading. The New York Stock Exchange is scheduled to be closed for
trading on the following days: New Year's Day, President's Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
The Board of Directors of the Exchange 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 New York Stock Exchange
(currently 4:00 p.m. Eastern Time).
Valuation Period--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 Sub-account. 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
Sub-account, the following steps are taken: (a) the aggregate accrued investment
income and capital gains and losses, whether realized or unrealized, of the
Sub-account for such Valuation Period is computed, (b) the amount in (a) is then
adjusted by the sum of the charges and credits for any applicable income taxes
and the deductions at the beginning of the Valuation Period for mortality and
expense risk charges and daily administration fee, and (c) the results of (a) as
adjusted by (b) are divided by the aggregate Unit Values in the Sub-account at
the beginning of the Valuation Period.
MISCELLANEOUS PROVISIONS
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 Variable Products
Operations 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 PHL Variable.
Deferment of Payment
Payment of the Contract Value in a single sum upon a withdrawal from, or
complete surrender of, a Contract will ordinarily be made within seven days
after receipt of the written request by Variable Products Operations. However,
payment of the value of any Accumulation Units may be postponed at times (a)
when the New York Stock Exchange is closed, other than customary weekend and
holiday closings, (b) when trading on the Exchange 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 govern mental 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.
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Free Look Period
PHL Variable may mail the Contract to the Owner or it may be delivered in
person. 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. (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 Sub-account 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 to have the Temporary Money
Market Allocation Amendment issued with the Contract, PHL Variable temporarily
allocates the initial purchase payment to the Money Market Sub-account. 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
Sub-account is allocated among the available Sub-accounts of the VA Account or
the Guaranteed Interest Account in accordance with the Contract Owner's
allocation instructions on the application.
If the initial purchase payment, or any portion thereof, was allocated to the
Guaranteed Interest Account, 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 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 PHL Variable 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, PHL Variable may seek to
substitute the shares of another Series or the shares of an entirely different
mutual fund. Before this can be done, the approval of the SEC, and possibly one
or more state insurance departments, will be required.
Ownership of the Contract
Ordinarily, the purchaser of a Contract is both the Owner and the Annuitant
and is entitled to exercise all the rights under the Contract. However, the
Owner may be an individual or entity other than the Annuitant. Spouses may own a
Contract as joint Owners. Transfer of the ownership of a Contract may involve
Federal income tax consequences, and a qualified adviser should be consulted
before any such transfer is attempted.
FEDERAL INCOME TAXES
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
PHL Variable Insurance Company'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 PHL Variable
Insurance Company'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 "Service"). For a discussion of Federal
income taxes as they relate to the Funds, please see the accompanying
Prospectuses for the Funds.
Tax Status
PHL Variable is taxed as a life insurance company under Part I of Sub-chapter
L of the Code. Since the Account is not a separate entity from PHL Variable and
its operations form a part of PHL Variable, it will not be taxed separately as a
"regulated investment company" under Sub-chapter 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 PHL Variable. PHL Variable 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--Non-Qualified Plans
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, 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".
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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. 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. These rules
do not apply to amounts received under Qualified Plans.
2. Surrenders or Withdrawals on or after the Contract
Maturity Date.
Upon receipt of a lump sum payment or an annuity payment under the
Contract, the recipient is taxed on the portion of the payment that exceeds
the investment in the Contract. 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. 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.
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.
Withholding of Federal income taxes on all distributions may be required
unless the recipient elects not to have any amounts withheld and properly
notifies Variable Products Operations of that election.
3. Penalty Tax on Certain Surrenders and Withdrawals.
With respect to amounts surrendered or distributed before the taxpayer
reaches age 59 1/2, a penalty tax is imposed equal to ten percent (10%) of
the portion of such amount that is includable in gross income. However, the
penalty tax will not apply to withdrawals: (i) made on or after the death of
the Contract Owner (or where the Contract Owner is not an individual, the
death of the "Primary Annuitant," who is defined as the individual the events
in whose life are of primary importance in affecting the timing and amount of
the payout under the Contract); (ii) attributable to the taxpayer's becoming
totally disabled within the meaning of Code Section 72(m)(7); (iii) which are
part of a series of substantially equal periodic payments made (not less
frequently than annually) for the life (or life expectancy) of the taxpayer,
or the joint lives (or joint life expectancies) of the taxpayer and his
beneficiary; (iv) from certain qualified plans (such distributions may,
however, be subject to a similar penalty under Code Section 72(4) relating to
distributions from qualified retirement plans.); (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, if the
modification takes place: (a) before the close of the period which is 5 years
from the date of the first payment and after the taxpayer attains age 59 1/2,
or (b) before the taxpayer reaches age 59 1/2.
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
must generally 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 (other than Code Section 457 Plans).
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
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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 Annuitant,
is considered to be 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
death of the first of the Contract Owners.
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 TSA program, or an IRA,
where the Contract is a qualified funding asset for structured settlements,
where the Contract is purchased on behalf of an employee upon termination of
a qualified plan, and in the case of an immediate annuity.
4.Section 1035 Exchanges.
Code Section 1035 provides, in general, that no gain or loss shall be
recognized on the exchange of one annuity contract for another. A replacement
contract obtained in a tax-free exchange of contracts succeeds to the status
of the surrendered contract. If the surrendered contract was issued prior to
August 14, 1982, the tax rules that formerly provided that the surrender was
taxable only to the extent the amount received exceeds the Contract Owner's
investment in the Contract, will continue to apply. In contrast, Contracts
issued on or after January 19, 1985, in a Code Section 1035 exchange, are
treated as new Contracts for purposes of the distribution-at-death rules.
Special rules and procedures apply to Code Section 1035 transactions.
Prospective Contract Owners wishing to take advantage of Code Section 1035
should consult their tax advisers.
5. Multiple Contracts.
Code Section 72(e)(11)(A)(ii) provides that for Contracts entered into
after October 21, 1988, for purposes of determining the amount of any
distribution under Code Section 72(e) (amounts not received as annuities)
that is includable in gross income, all non-qualified deferred annuity
contracts issued by the same insurer (or affiliate) to the same Contract
Owner during any calendar year are to be aggregated and treated as one
contract. Thus, any amount received under any such contract prior to the
Contract Maturity Date, such as a withdrawal, dividend or loan, will be
taxable (and possibly subject to the 10% penalty tax) to the extent of the
combined income in all such contracts.
The Treasury Department has specific authority to issue regulations that
prevent the avoidance of Code Section 72(e) through the serial purchase of
annuity contracts or otherwise. In addition, there may be situations where
the Treasury may conclude that it would be appropriate to aggregate two or
more contracts purchased by the same Contract Owner. Accordingly, a Contract
Owner should consult a competent tax adviser before purchasing more than one
Contract or other annuity contracts.
Diversification Standards
1.Diversification Regulations.
To comply with the diversification regulations under Code Section 817(h)
("Diversification Regulations"), after a start-up period, each Series of the
Fund 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 the Fund is
represented by any one investment, no more than 70% is represented by any two
investments, no more than 80% is represented by any three investments, and no
more than 90% is represented by any four investments. A "look-through" rule
applies to treat a pro-rata portion of each asset of the Fund as an asset of
the Account, and each Series of the Fund is tested for compliance with the
percentage limitations. All securities of the same issuer are treated as a
single investment. As a result of the 1988 Act, each Government agency or
instrumentality will be treated as a separate issuer for purposes of these
limitations.
In connection with the issuance of the Diversification Regulations, the
Treasury announced that such regulations do not provide guidance concerning
the extent to which Contract Owners may direct their investments to
particular divisions of a separate account. Regulations or a revenue ruling
in this regard are expected to be issued in the future. It is not clear, at
this time, what these regulations or the revenue ruling will provide. It is
possible that when issued, the Contract may need to be modified to comply
with such rules. For these reasons, PHL Variable reserves the right to modify
the Contract, as necessary, to prevent the Contract Owner from being
considered the owner of the assets of the Account.
PHL Variable 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 PHL
Variable Qualified Plan Contracts (i.e. the Fund) will be structured to
comply with the diversification standards because the Fund serves as the
investment vehicle for non-qualified Contracts as well as Qualified Plan
Contracts.
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Qualified Plans
The Contracts may be used with several types of Qualified Plans. TSAs,
Keoghs, Individual Retirement Accounts ("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, PHL Variable 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 will
generally be subject to 20 percent income tax withholding. Mandatory withholding
can only be avoided if the employee arranges for a direct rollover to another
qualified pension or profit-sharing plan or to an IRA.
The new mandatory withholding rules apply to all taxable distributions from
qualified plans or TSA's, except a) distributions required under the Code, and
b) substantially equal distributions made over the life (or life expectancy) of
the employee, or for a term certain of 10 years or more.
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, maximum contributions;
required distributions; penalty taxes on early or insufficient distributions,
and income tax withholding on distributions. The following are brief
descriptions of the various types of Qualified Plans and of the use of the
contracts in connection therewith.
1.Tax-Sheltered Annuities.
Code Section 403(b) permits public school systems and certain types of
charitable, educational and scientific organizations, generally specified in
Code Section 501(c)(3) to purchase annuity contracts on behalf of their
employees and, subject to certain limitations, allows employees of those
organizations to exclude the amount of purchase payments from gross income
for Federal income tax purposes. These annuity contracts are commonly
referred to as "TSAs".
For taxable years beginning after December 31, 1988, Code Section
403(b)(11) imposes certain restrictions on a Contract Owner's ability to make
partial withdrawals from, or surrenders of, Code Section 403(b) Contracts, if
the cash withdrawn is attributable to purchase payments made under a salary
reduction agreement. Specifically, Code Section 403(b)(11) allows a Contract
Owner to make a surrender or partial withdrawal only (A) when the employee
attains age 59 1/2, separates from service, dies, or becomes disabled (as
defined in the Code), or (B) in the case of hardship. In the case of
hardship, the amount distributable cannot include any income earned under
the Contract.
The 1988 Act amended the effective date of Code Section 403(b)(11), so
that it applies only with respect to distributions from Code Section 403(b)
Contracts which are attributable to assets other than assets held as of the
close of the last year beginning before January 1, 1989. Thus, the
distribution requirements 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.
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 Internal
Revenue Service.
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.
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.
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As a general rule, the maximum amount which an employer may contribute on
behalf of a Participant to a defined benefit plan is the amount necessary to
fund an annual benefit equal to the lesser of 100% of compensation or
$120,000. If the plan is a defined contribution plan, the maximum
contribution is the lesser of 25% of compensation or $30,000 for each
Participant. If the plan is a profit-sharing plan, the amount which the
employer may deduct cannot exceed 15% of the compensation otherwise paid to
participating employees in the taxable year. Under a profit-sharing plan
which includes a cash or deferral provision described in Section 401(k) of
the Code, elective deferral contributions are limited to $9,240 a year, or
less in the case of a highly compensated employee (as defined by the tax law)
where certain non-discriminatory percentage tests require a lower limit.
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 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 agree-
ments with the plan sponsor and not by the terms of the Contracts.
6.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. In addition, the TRA has significantly changed
a great many rules involved with Qualified Plans. 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.
SALES OF VARIABLE ACCUMULATION CONTRACTS
The principal underwriter of the Contracts is Phoenix Equity Planning
Corporation ("PEPCO"). Contracts may be purchased through registered
representatives of W.S. Griffith & Company, Inc. ("W.S. Griffith") licensed to
sell PHL Variable annuity contracts. W.S. Griffith and PEPCO are indirect
wholly-owned subsidiaries of Phoenix Home Life Mutual Insurance Company.
Contracts may also be purchased through other broker-dealers or entities
registered under or exempt 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 PHL Variable.
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. In addition to
reimbursing PEPCO for its expenses, PHL Variable pays PEPCO an amount equal to
up to 7.25% of the purchase payments made under the Contract. PEPCO pays any
qualified distribution organization an amount which may not exceed up to 7.25%
of the purchase payments under the Contract. Any such amount paid with respect
to Contracts sold through other broker/dealers will be paid by PHL Variable to
or through PEPCO. The amounts paid are not deducted from the purchase payments.
Deductions for sales charges (as described under "Sales Charges") may be used as
reimbursement for commission payments.
PEPCO will sponsor sales contests, training and educational meetings and
provide to all qualifying dealers, from its own profits and resources,
additional compensation in the form of trips, merchandise or expense
reimbursement. Brokers and dealers other than PEPCO may also make customary
additional charges for their services in effecting purchases, if they notify the
Fund of their intention to do so.
STATE REGULATION
PHL Variable is subject to the provisions of the Connecticut insurance laws
applicable to life insurance companies and to regulation and supervision by the
Connecticut Superintendent of Insurance. PHL Variable is also subject to the
applicable insurance laws of all the other states and jurisdictions in which it
does an insurance business.
State regulation of PHL Variable 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 policies of the Account.
REPORTS
Reports showing the Contract Value and containing the financial statements of
the Account will be furnished at least annually to Contract Owners.
VOTING RIGHTS
As stated above, all of the assets held in an available Sub-account will be
invested in shares of a corresponding Series of the Fund. PHL Variable is the
legal owner of those shares and as such has the right to vote to elect the Board
of Trustees of the Fund, to vote upon certain matters that are required by the
Investment Company Act of 1940 ("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, PHL Variable intends to vote the
shares of the Fund at regular and special meetings of the shareholders of the
Fund in accordance with instructions received from Owners of the Contracts.
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PHL Variable currently intends to vote Fund shares attributable to any PHL
Variable assets and Fund shares held in each Sub-account for which no timely
instructions from Owners are received in the same proportion as those shares in
that Sub-account for which instructions are received. In the future, to the
extent applicable Federal securities laws or regulations permit PHL Variable to
vote some or all shares of the Fund in its own right, it may elect to do so.
Matters on which Owners may give voting instructions may include the
following: (1) election of the Board of Trustees of the Fund; (2) ratification
of the independent accountant for the Fund; (3) approval or amendment of the
investment advisory agreement for the Series of the Fund corresponding to the
Owner's selected Sub-account(s); (4) any change in the fundamental investment
policies or restrictions of each such Series; and (5) any other matter requiring
a vote of the Shareholders of the 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 Sub-account
to the total number of votes attributable to the Sub-account. In determining the
number of votes, fractional shares will be recognized. The number of votes for
which each Owner may give PHL Variable Insurance Company instructions will
be determined as of the record date for Fund shareholders chosen by the Board of
Trustees of the Fund. PHL Variable Insurance Company 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
PHL Variable Insurance Company, 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
Legal matters involving Federal securities and income tax laws in connection
with the Contracts described in this Prospectus have been passed upon by Jorden
Burt Berenson & Johnson LLP, Washington, D.C.
STATEMENT OF ADDITIONAL INFORMATION
The Statement of Additional Information contains more specific information
and financial statements relating to the Account and PHL Variable Insurance
Company. The Table of Contents of the Statement of Additional Information is set
forth below:
Underwriter
Calculation of Yield and Return
Calculation of Annuity Payments
Experts
Financial Statements
Contract Owner inquiries and requests for a Statement of Additional
Information should be directed to Variable Products Operations in writing at 101
Munson Street, P.O. Box 942, Greenfield, Massachusetts 01302-0942, or by
calling Variable Products Operations at (800) 447-4312.
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APPENDIX A
THE GUARANTEED INTEREST ACCOUNT
Contributions to the Guaranteed Interest Account under the Contract and
transfers to the Guaranteed Interest Account become part of the general account
of PHL Variable Insurance Company (the "General Account"), which supports
insurance and annuity obligations. Because of exemptive and exclusionary
provisions, interest in the General Account has not been registered under the
Securities Act of 1933 ("1933 Act") nor is the General Account registered as an
investment company under the 1940 Act. Accordingly, neither the General Account
nor any interest therein is specifically subject to the provisions of the 1933
or 1940 Acts and the staff of the Securities and Exchange Commission has not
reviewed the disclosures in this Prospectus concerning the Guaranteed Interest
Account. Disclosures regarding the Guaranteed Interest Account 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 PHL Variable
Insurance Company other than those allocated to any separate account. Premium
payments will be allocated to the Guaranteed Interest Account and, therefore,
the General Account, as elected by the Owner at the time of purchase or as
subsequently changed. PHL Variable 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 PHL Variable 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. PHL Variable assumes this "mortality
risk" by virtue of annuity rates incorporated in the Contract that cannot be
changed. In addition, PHL Variable 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 PHL Variable 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 PHL Variable. However, PHL Variable
guarantees that it will credit interest at a rate of not less than 4% per year
compounded annually, to amounts allocated to the Guaranteed Interest Account.
PHL Variable 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.
Bi-weekly, PHL Variable will set the excess interest rate, if any, that will
apply to amounts deposited to the Guaranteed Interest Account. 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 Guaranteed Interest
Account 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 PHL Variable based on
information as to expected investment yields. Some of the factors that PHL
Variable may consider in determining whether to credit excess interest to
amounts allocated to the Guaranteed Interest Account 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 GUARANTEED INTEREST ACCOUNT IN
EXCESS OF 4% PER YEAR WILL BE DETERMINED IN THE SOLE DISCRETION OF PHL VARIABLE
AND WITHOUT REGARD TO ANY SPECIFIC FORMULA. THE CONTRACT OWNER ASSUMES THE RISK
THAT INTEREST CREDITED TO GUARANTEED INTEREST ACCOUNT ALLOCATIONS MAY NOT EXCEED
THE MINIMUM GUARANTEE FOR ANY GIVEN YEAR.
PHL Variable 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 PHL Variable'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 Guaranteed Interest Account
Contract Value. PHL Variable guarantees that, at any time, the Guaranteed
Interest Account Contract Value will not be less than the amount of purchase
payments allocated to the Guaranteed Interest Account, plus interest at the rate
of 4% per year, compounded annually, plus any additional interest which PHL
Variable may, in its discretion, credit to the Guaranteed Interest Account, 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 Guaranteed Interest Account will be
reduced by any applicable surrender charge and annual administration charge (see
"Deductions and Charges").
IN GENERAL, ONE TRANSFER PER CONTRACT YEAR IS ALLOWED FROM THE GUARANTEED
INTEREST ACCOUNT. THE AMOUNT WHICH CAN BE TRANSFERRED IS LIMITED TO THE GREATER
OF $1,000 AND 25% OF THE CONTRACT VALUE IN THE GUARANTEED INTEREST ACCOUNT.
UNDER THE SYSTEMATIC TRANSFER PROGRAM, TRANSFERS OF APPROXIMATELY EQUAL AMOUNTS
MAY BE MADE OVER A MINIMUM 18 MONTH PERIOD. NON-SYSTEMATIC TRANSFERS FROM THE
GUARANTEED INTEREST ACCOUNT WILL BE EFFECTUATED ON THE DATE OF RECEIPT BY
VARIABLE PRODUCTS OPERATIONS, UNLESS OTHERWISE REQUESTED BY THE CONTRACT OWNER.
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APPENDIX B
DEDUCTIONS FOR STATE PREMIUM TAXES
Qualified and Non-Qualified Annuity Contracts
Upon Upon
State Purchase(1)Annuitization Non-Qualified Qualified
- ----- ---------- ------------- ------------- ---------
California ............... X 2.35% 0.50%
D.C....................... X 2.25 2.25
Kansas.................... X 2.00
Kentucky.................. X 2.00 2.00
Maine..................... X 2.00
Nevada.................... X 3.50
South Dakota.............. X 1.25
West Virginia............. X 1.00 1.00
Wyoming................... X 1.00
NOTE: The above premium tax deduction rates are as of January 1, 1996. 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, payment of death proceeds or Maturity Date.
24
