AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 30, 1997
FILE NO. 33-87376
811-8914
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-4
---------------------
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933 [X]
PRE-EFFECTIVE AMENDMENT NO. [ ]
POST-EFFECTIVE AMENDMENT NO. 3 [X]
AND/OR
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 4 [X]
(CHECK APPROPRIATE BOX OR BOXES.)
---------------------
PHL VARIABLE ACCUMULATION ACCOUNT
(EXACT NAME OF REGISTRANT)
PHL VARIABLE INSURANCE COMPANY
(NAME OF DEPOSITOR)
-------------------
ONE AMERICAN ROW, HARTFORD, CONNECTICUT 06102-5056
(ADDRESS OF DEPOSITOR'S PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(800) 447-4312
(DEPOSITOR'S TELEPHONE NUMBER, INCLUDING AREA CODE)
---------------------
DONA D. YOUNG, ESQ.
PHL VARIABLE INSURANCE COMPANY
ONE AMERICAN ROW
HARTFORD, CONNECTICUT 06102-5056
(NAME AND ADDRESS OF AGENT FOR SERVICE)
-------------------
COPIES TO:
LYNN K. STONE, ESQUIRE RICHARD J. WIRTH, ESQ.
BLAZZARD, GRODD & HASENAUER, P.C. PHL VARIABLE INSURANCE COMPANY
943 POST ROAD EAST ONE AMERICAN ROW
WESTPORT, CT 06880 HARTFORD, CT 06102-5056
-------------------
It is proposed that this filing will become effective (check
appropriate box)
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[X] on May 1, 1997 pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a)(1) of Rule 485
[ ] on pursuant to paragraph (a)(1) of Rule 485
If appropriate, check the following box:
[ ] this Post-Effective Amendment designates a new effective date
for a previously filed Post-Effective Amendment.
REGISTRANT HAS CHOSEN TO REGISTER AN INDEFINITE NUMBER OF SECURITIES IN
ACCORDANCE WITH RULE 24F-2. THE RULE 24F-2 NOTICE OF REGISTRANT'S MOST RECENT
FISCAL YEAR WAS FILED ON FEBRUARY 21, 1997.
================================================================================
<PAGE>
PHL VARIABLE ACCUMULATION ACCOUNT
REGISTRATION
STATEMENT ON FORM N-4
CROSS REFERENCE SHEET
SHOWING LOCATION IN PROSPECTUS
AND STATEMENT OF ADDITIONAL INFORMATION
AS REQUIRED BY FORM N-4
<TABLE>
<CAPTION>
FORM N-4 ITEM PROSPECTUS CAPTION
------------- ------------------
<S> <C>
1. Cover Page ............................................... Cover Page
2. Definitions .............................................. Special Terms
3. Synopsis.................................................. Summary of Expenses; Summary
4. Condensed Financial Information .......................... Financial Highlights
5. General Description of Registrant, Depositor, and PHL Variable Insurance Company and the PHL Variable
Portfolio Companies.................................... Accumulation Account; The Fund; Voting Rights
6. Deductions and Charges ................................... Deductions and Charges; Sales of Variable Accumulation
Contracts
7. General Description of Variable Annuity Contracts......... The Variable Accumulation Annuity; Purchase of Contracts;
The Accumulation Period; Miscellaneous Provisions
8. Annuity Period ........................................... The Annuity Period
9. Death Benefits............................................ Payment Upon Death Before Maturity Date; Payment Upon
Death After Maturity Date
10. Purchases and Contract Value ............................. Purchase of Contracts; The Accumulation Period; Variable
Account Valuation Procedures; Sales of Variable
Accumulation Contracts
11. Redemptions............................................... Surrender of Contracts; Partial Withdrawals; Free Look
Period
12. Taxes .................................................... Federal Income Taxes
13. Legal Proceeding.......................................... Litigation
14. Table of Contents of Statement of Additional Information.. Statement of Additional Information
15. Cover Page ............................................... Cover Page
16. Table of Contents ........................................ Table of Contents
17. General Information and History .......................... Not Applicable
18. Services.................................................. Not Applicable
19. Purchase of Securities Being Offered...................... Appendix
20. Underwriters ............................................. Underwriter
21. Calculation of Yield Quotations of Money Market
Subaccounts.......................................... Calculation of Yield and Return
22. Annuity Payments.......................................... Calculation of Annuity Payments
23. Financial Statements ..................................... Financial Statements
</TABLE>
<PAGE>
FEATURES SUCH AS THE ANNUALLY ENHANCED DEATH BENEFIT (SEE "PAYMENT UPON DEATH
BEFORE MATURITY DATE") MAY NOT YET BE AVAILABLE IN YOUR STATE. FOR INFORMATION
CALL VARIABLE PRODUCTS OPERATIONS AT (800) 447-4312.
<PAGE>
PHL VARIABLE INSURANCE COMPANY
HOME OFFICE: PHOENIX VARIABLE PRODUCTS
One American Row MAIL OPERATIONS (VPMO):
Hartford, Connecticut PO Box 8027
Boston, MA 02266-8027
VARIABLE ACCUMULATION DEFERRED ANNUITY CONTRACT
PROSPECTUS
May 1, 1997
This Prospectus describes a variable accumulation deferred annuity contract
(the "Contract" or "Contracts"), offered by PHL Variable Insurance Company.
The Contract is designed to give the Contract Owner a retirement income in the
future. Purchase payments made to the Contract accumulate on a tax-deferred
basis which later may be distributed under a variety of options designed to suit
your financial needs. You decide the timing and amount of purchase payments and
allocations of Contract Value to the Guaranteed Interest Account ("GIA") and/or
one or more of the Subaccounts of the PHL Variable Accumulation Account (the
"Account"). The assets of the Subaccounts are used to purchase, at Net Asset
Value, shares of a designated underlying mutual fund (collectively, the "Funds")
in the following series or portfolios ("Series") of the Funds of underlying
Account options:
<TABLE>
<CAPTION>
FUND ADVISER
====================================================================================================================================
THE PHOENIX EDGE SERIES FUND
<S> <C> <C>
o Money Market Series o Growth Series o Phoenix Investment Counsel, Inc.
o Multi-Sector Fixed Income Series o Strategic Allocation Series o Phoenix Investment Counsel, Inc.
o International Series o Balanced Series o Phoenix Investment Counsel, Inc.
o Real Estate Securities Series o Phoenix Realty Securities, Inc.
o Strategic Theme Series o Phoenix Investment Counsel, Inc.
o Aberdeen New Asia Series o Phoenix-Aberdeen International Advisors, LLC
WANGER ADVISORS TRUST
o U.S. Small Cap Series o International Small Cap Series o Wanger Asset Management, LP
TEMPLETON VARIABLE PRODUCTS SERIES FUND
o Templeton Stock (global) Series o Templeton Asset Allocation o Templeton Investment Counsel, Inc.
o Templeton International Series (global) Series o Templeton Investment Counsel, Inc.
o Templeton Developing Markets Series o Templeton Asset Management, Ltd.
====================================================================================================================================
</TABLE>
The Contract Value allocated to the Account is not guaranteed and will vary
with the investment performance of the underlying Fund. The Contract Value
allocated to the GIA will accumulate at rates we determine. The guaranteed rates
offered will, in no event, be less than 4% for allocations made to the GIA.
You may select from a number of different variable annuity and fixed annuity
payout options, some of which, offer retirement income payments which you cannot
out live. (See "The Annuity Period--Annuity Options.")
The Contract has a "free look" period during which you may return the Contract
if you are not satisfied for any reason. (See "Free Look Period.")
This Prospectus provides information about the Contract that prospective
investors should know before investing. You should read it carefully and retain
it for future reference. The Prospectus is not valid unless accompanied by
prospectuses for the Funds.
A statement of additional information (SAI), dated May 1, 1997, which is part of
the registration statement filed with the Securities and Exchange Commission
("SEC") for the Account, is available free of charge upon request by writing to
VPMO or by calling our service center, Variable Products Operations (VPO) toll
free at 800-447-4312. The SAI has been incorporated by reference into this
Prospectus, and its Table of Contents appears at the back of this Prospectus.
THE CONTRACTS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY,
ANY FINANCIAL INSTITUTION AND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
INVESTMENT IN THE CONTRACTS IS SUBJECT TO RISK THAT MAY CAUSE THE VALUE OF THE
OWNER'S INVESTMENT TO FLUCTUATE, AND WHEN THE CONTRACTS ARE SURRENDERED, THE
VALUE MAY BE HIGHER OR LOWER THAN THE PURCHASE PAYMENTS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
1
<PAGE>
TABLE OF CONTENTS
Heading Page
- ----------------------------------------------------------------
SUMMARY OF EXPENSES........................................ 3
FINANCIAL HIGHLIGHTS....................................... 6
SUMMARY.................................................... 7
SPECIAL TERMS.............................................. 8
PERFORMANCE HISTORY........................................ 9
THE VARIABLE ACCUMULATION ANNUITY.......................... 10
PHL VARIABLE AND THE ACCOUNT............................... 10
THE PHOENIX EDGE SERIES FUND............................... 10
WANGER ADVISORS TRUST...................................... 11
TEMPLETON VARIABLE PRODUCTS SERIES FUND.................... 11
PURCHASE OF CONTRACTS...................................... 12
DEDUCTIONS AND CHARGES..................................... 12
Premium Tax............................................. 12
Sales Charges........................................... 12
Charges for Mortality and Expense Risks................. 13
Charges for Administrative Services..................... 13
Other Charges........................................... 13
THE ACCUMULATION PERIOD.................................... 14
Accumulation Units...................................... 14
Accumulation Unit Values................................ 14
Transfers .............................................. 14
Surrender of Contract; Partial Withdrawals.............. 15
Lapse of Contract....................................... 15
Payment Upon Death Before Maturity Date ................ 15
THE ANNUITY PERIOD ........................................ 16
Variable Accumulation Annuity Contracts................. 16
Annuity Options ........................................ 16
Option A--Life Annuity With Specified Period Certain.. 17
Option B--Non-Refund Life Annuity..................... 17
Option D--Joint and Survivor Life Annuity............. 17
Option E--Installment Refund Life Annuity............. 17
Option F--Joint and Survivor Life Annuity with
10 Year Period Certain ........................... 17
Option G--Payments for Specified Period............... 17
Option H--Payments of Specified Amount................ 17
Option I--Variable Payment Life Annuity with 10 Year
Period Certain ................................... 17
Option J--Joint Survivor Variable Payment Life Annuity
with 10 Year Period Certain ...................... 17
Option K--Variable Payment Annuity for a Specified
Period ........................................... 17
Option L--Variable Payment Life Expectancy Annuity.... 18
Option M--Unit Refund Variable Payment Life Annuity... 18
Option N--Variable Payment Non-Refund Life Annuity.... 18
Other Options and Rates............................... 18
Other Conditions...................................... 18
Payment Upon Death After Maturity Date.................. 18
VARIABLE ACCOUNT VALUATION PROCEDURES...................... 18
MISCELLANEOUS PROVISIONS................................... 19
Assignment.............................................. 19
Deferment of Payment ................................... 19
Free Look Period........................................ 19
Amendments to Contracts................................. 19
Substitution of Fund Shares............................. 19
Ownership of the Contract............................... 19
FEDERAL INCOME TAXES....................................... 19
Introduction............................................ 19
Tax Status.............................................. 19
Taxation of Annuities in General--Non-Qualified Plans... 20
Surrenders or Withdrawals Prior to the Contract
Maturity Date...................................... 20
Surrenders or Withdrawals On or After the Contract
Maturity Date...................................... 20
Penalty Tax on Certain Surrenders and Withdrawals..... 20
Additional Considerations............................... 21
Diversification Standards .............................. 21
Qualified Plans......................................... 22
Tax Sheltered Annuities .............................. 22
Keogh Plans........................................... 23
Individual Retirement Accounts........................ 23
Corporate Pension and Profit-Sharing Plans............ 23
Deferred Compensation Plans with Respect to
Service for State and Local Governments and
Tax Exempt Organizations........................... 23
Penalty Tax on Certain Surrenders and Withdrawals
from Qualified Contracts........................... 23
Seek Tax Advice....................................... 24
SALES OF VARIABLE ACCUMULATION CONTRACTS .................. 24
STATE REGULATION .......................................... 24
REPORTS ................................................... 24
VOTING RIGHTS ............................................. 24
TEXAS OPTIONAL RETIREMENT PROGRAM ......................... 25
LITIGATION ................................................ 25
LEGAL MATTERS ............................................. 25
STATEMENT OF ADDITIONAL INFORMATION........................ 25
APPENDIX A ................................................ 26
APPENDIX B ................................................ 27
2
<PAGE>
<TABLE>
SUMMARY OF EXPENSES
<CAPTION>
CONTRACT OWNER TRANSACTION EXPENSES ALL SUBACCOUNTS
- ----------------------------------- ---------------
<S> <C>
Sales Charges Imposed on Purchases................................................ None
Deferred Sales Charges (as a percentage of amount surrendered):(1)
Age of Payment in Complete Years 0-1.......................................... 7%
Age of Payment in Complete Years 1-2.......................................... 6%
Age of Payment in Complete Years 2-3.......................................... 5%
Age of Payment in Complete Years 3-4.......................................... 4%
Age of Payment in Complete Years 4-5.......................................... 3%
Age of Payment in Complete Years 5-6.......................................... 2%
Age of Payment in Complete Years 6-7.......................................... 1%
Age of Payment in Complete Years 7 and thereafter............................. None
Exchange Fee
Current....................................................................... None
Maximum Allowable Charge Per Exchange......................................... $10
ANNUAL CONTRACT FEE
Current....................................................................... $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>
<TABLE>
FUND ANNUAL EXPENSES
(as a percentage of Fund average net assets)
<CAPTION>
OTHER EXPENSES(2)
RULE 12B-1 (AFTER EXPENSE TOTAL ANNUAL
MANAGEMENT FEES FEES REIMBURSEMENT) EXPENSES
--------------- ---- -------------- --------
<S> <C> <C> <C> <C>
Growth Series................................................... .63% N/A .09% .72%
Multi-Sector Fixed Income Series................................ .50% N/A .15% .65%
Strategic Allocation Series .................................... .58% N/A .12% .70%
Money Market Series............................................. .40% N/A .15% .55%
International Series ........................................... .75% N/A .29% 1.04%
Balanced Series................................................. .55% N/A .13% .68%
Real Estate Securities Series................................... .75% N/A .25% 1.00%
Strategic Theme Series.......................................... .75% N/A .25% 1.00%
Aberdeen New Asia Series........................................ 1.00% N/A .25% 1.25%
Wanger U.S. Small Cap Series.................................... .99% N/A .22% 1.21%
Wanger International Small Cap Series........................... 1.30% N/A .49% 1.79%
Templeton Stock Series(3,4)..................................... .70% .25% .18% 1.13%
Templeton Asset Allocation Series(3,4).......................... .61% .25% .17% 1.03%
Templeton International Series(3,4)............................. .70% .25% .18% 1.13%
Templeton Developing Markets Series(3,5)........................ 1.25% .25% .53% 2.03%
1 A sales charge is taken from the proceeds when a Contract is surrendered or
when an amount is withdrawn, if assets have not been held under the Contract
for a certain period of time. An amount up to 10% of the Contract Value may
be withdrawn each year without a sales charge. (See "Deductions and
Charges--Sales Charges.")
2 Each Series pays a portion or all of its total operating expenses other than
the management fee. The Growth, Multi-Sector, Allocation, Money Market and
Balanced Series will pay up to .15%; the Real Estate, Theme and Asia Series
will pay up to .25%; the International Series will pay up to .40%; the U.S.
Small Cap Series will pay up to .50%; and the International Small Cap Series
will pay up to .60%. Absent expense reimbursement, total fund operating
expenses were .67%, 1.43%, 1.28% and 2.87%, for Multi-Sector, Real Estate,
Theme and Asia, respectively. Expenses may be higher or lower than those
shown but are subject to expense limitations as noted.
3 Inclusion of this Subaccount began on May 1, 1997. Because Class 2 shares
were not offered until May 1, 1997, the figures for "Management Fees" and
"Other Expenses" are based on the historical expenses of the Fund's Class 1
shares for the fiscal year ended December 31, 1996, except as otherwise
noted. Class 2 shares of the Fund have a distribution plan or "Rule 12b-1
Plan" which is described in the Fund's prospectus.
4 Management fees and total operating expenses have been restated to reflect
the management fee schedule which was approved by shareholders and which
takes effect on May 1, 1997. Actual management fees and total fund operating
expenses before May 1, 1997 were lower.
5 The Adviser waived a portion of its fees during 1996. After the reduction,
actual management fees and total operating expenses of the portfolio in 1996
were 1.17% and 1.95% of net assets, respectively. This agreement has been
terminated.
</TABLE>
3
<PAGE>
SUMMARY OF EXPENSES
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:
<TABLE>
<CAPTION>
SUBACCOUNT 1 YEAR 3 YEARS 5 YEARS 10 YEARS
---------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Growth Series............................................... $ 78 $110 $142 $258
Multi-Sector Fixed Income Series............................ 78 108 138 251
Strategic Allocation Series................................ 78 109 141 256
Money Market Series......................................... 77 105 133 241
International Series........................................ 81 119 157 290
Balanced Series............................................. 78 109 140 254
Real Estate Securities Series............................... 81 118 155 286
Strategic Theme Series...................................... 81 118 155 286
Aberdeen New Asia Series.................................... 83 125 168 311
Wanger U.S. Small Cap Series................................ 83 124 166 307
Wanger International Small Cap Series....................... 89 140 193 362
Templeton Stock Series(1)................................... 82 122 162 299
Templeton Asset Allocation Series(1)........................ 81 119 157 289
Templeton International Series(1)........................... 82 122 162 299
Templeton Developing Markets Series(1)...................... 91 147 204 383
</TABLE>
If you annuitize your Contract at the end of the applicable time period: You
would pay the following expenses on a $1,000 investment assuming 5% annual
return on assets:
<TABLE>
<CAPTION>
SUBACCOUNT 1 YEAR 3 YEARS 5 YEARS 10 YEARS
---------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Growth Series............................................... $ 78 $110 $121 $258
Multi-Sector Fixed Income Series............................ 78 108 117 251
Strategic Allocation Series................................ 78 109 120 256
Money Market Series......................................... 77 105 112 241
International Series........................................ 81 119 137 290
Balanced Series............................................. 78 109 119 254
Real Estate Securities Series............................... 81 118 135 286
Strategic Theme Series...................................... 81 118 135 286
Aberdeen New Asia Series.................................... 83 125 147 311
Wanger U.S. Small Cap Series................................ 83 124 145 307
Wanger International Small Cap Series....................... 89 140 174 362
Templeton Stock Series(1)................................... 82 122 141 299
Templeton Asset Allocation Series(1)........................ 81 119 137 289
Templeton International Series(1)........................... 82 122 141 299
Templeton Developing Markets Series(1)...................... 91 147 185 383
</TABLE>
(1) Inclusion of this Subaccount began on May 1, 1997.
4
<PAGE>
SUMMARY OF EXPENSES
If you do not surrender your Contract: You would pay the following expenses
on a $1,000 investment assuming 5% annual return on assets:
<TABLE>
<CAPTION>
SUBACCOUNT 1 YEAR 3 YEARS 5 YEARS 10 YEARS
---------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Growth Series............................................... $ 23 $ 71 $121 $258
Multi-Sector Fixed Income Series............................ 22 69 117 251
Strategic Allocation Series................................ 23 70 120 256
Money Market Series......................................... 21 66 112 241
International Series........................................ 26 80 137 290
Balanced Series............................................. 23 70 119 254
Real Estate Securities Series............................... 26 79 135 286
Strategic Theme Series...................................... 26 79 135 286
Aberdeen New Asia Series.................................... 28 87 147 311
Wanger U.S. Small Cap Series................................ 28 85 145 307
Wanger International Small Cap Series....................... 34 103 174 362
Templeton Stock Series(1)................................... 27 83 141 299
Templeton Asset Allocation Series(1)........................ 26 80 137 289
Templeton International Series(1)........................... 27 83 141 299
Templeton Developing Markets Series(1)...................... 36 110 185 383
</TABLE>
(1) Inclusion of this Subaccount began on May 1, 1997.
The purpose of the tables set forth above is to assist the Contract Owner in
understanding the various costs and expenses that a Contract Owner will bear
directly or indirectly. The tables reflect expenses of the Account as well as
the Funds. (See "Deductions and Charges" in this Prospectus and 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" and Appendix B.)
The Example should not be considered a presentation of 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.")
5
<PAGE>
PHL VARIABLE ACCUMULATION ACCOUNT
FINANCIAL HIGHLIGHTS
ACCUMULATION UNIT VALUES
(SELECTED DATA FOR AN ACCUMULATION UNIT OUTSTANDING
THROUGHOUT THE INDICATED PERIOD)
Following are financial highlights for the period indicated.
<TABLE>
<CAPTION>
MULTI-SECTOR SUBACCOUNT
MONEY MARKET (FORMERLY THE "BOND"
SUBACCOUNT GROWTH SUBACCOUNT SUBACCOUNT)
------------------------- ------------------------- --------------------------
FROM FROM FROM
YEAR INCEPTION YEAR INCEPTION YEAR INCEPTION
ENDED 7/31/95 TO ENDED 7/31/95 TO ENDED 7/31/95 TO
12/31/96 12/31/95 12/31/96 12/31/95 12/31/96 12/31/95
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Unit value, beginning of period. $1.014954 $1.000000 $1.082876 $1.000000 $1.051781 $1.000000
Unit value, end of period....... $1.051525 $1.014954 $1.202623 $1.082876 $1.166339 $1.051781
========= ========= ========= ========= ========= =========
Number of units outstanding (000) 22,142 5,893 42,365 3,037 13,252 319
</TABLE>
<TABLE>
<CAPTION>
ALLOCATION SUBACCOUNT
(FORMERLY THE "TOTAL RETURN
SUBACCOUNT") INTERNATIONAL SUBACCOUNT BALANCED SUBACCOUNT
--------------------------- -------------------------- -------------------------
FROM FROM FROM
YEAR INCEPTION YEAR INCEPTION YEAR INCEPTION
ENDED 7/31/95 TO ENDED 7/31/95 TO ENDED 7/31/95 TO
12/31/96 12/31/95 12/31/96 12/31/95 12/31/96 12/31/95
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Unit value, beginning of period. $1.042018 $1.000000 $1.009660 $1.000000 $1.047597 $1.000000
Unit value, end of period....... $1.120864 $1.042018 $1.181847 $1.009660 $1.142528 $1.047597
========= ========= ========= ========= ========= =========
Number of units outstanding (000) 13,249 2,919 3,095 133 5,616 719
</TABLE>
<TABLE>
<CAPTION>
WANGER INT'L SMALL CAP WANGER U.S. SMALL CAP
REAL ESTATE SUBACCOUNT SUBACCOUNT SUBACCOUNT
------------------------- -------------------------- -------------------------
FROM FROM FROM
YEAR INCEPTION YEAR INCEPTION YEAR INCEPTION
ENDED 7/31/95 TO ENDED 7/31/95 TO ENDED 7/31/95 TO
12/31/96 12/31/95 12/31/96 12/31/95 12/31/96 12/31/95
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Unit value, beginning of period. $1.050105 $1.000000 $1.088168 $1.000000 $0.951679 $1.000000
Unit value, end of period....... $1.378845 $1.050105 $1.417188 $1.088168 $1.376482 $0.951679
========= ========= ========= ========= ========= =========
Number of units outstanding (000) 1,543 226 9,834 257 16,757 1,313
</TABLE>
THEME SUBACCOUNT ASIA SUBACCOUNT
---------------- ---------------
FROM FROM
INCEPTION INCEPTION
1/29/96 TO 9/20/96 TO
12/31/96 12/31/96
-------- --------
Unit value, beginning of period. $1.000000 $1.000000
Unit value, end of period....... $1.078271 $0.997488
========= =========
Number of units outstanding (000) 4,054 1,133
TEMPLETON STOCK SUBACCOUNT
TEMPLETON ASSET ALLOCATION SUBACCOUNT
TEMPLETON INTERNATIONAL SUBACCOUNT
TEMPLETON DEVELOPING MARKETS SUBACCOUNT
These Subaccounts commenced operations as of May 1, 1997; accordingly, data
for these Subaccounts is not yet available.
6
<PAGE>
SUMMARY
- --------------------------------------------------------------------------------
The following summary of Prospectus information of the Contract should be
read with the detailed information appearing elsewhere in this Prospectus. (See
"Table of Contents" and "Special Terms.")
OVERVIEW
The Contract offers a dynamic concept in retirement planning designed to
give you maximum flexibility in obtaining your investment goals. There are no
deductions from your purchase payments so that your entire investment is put to
work in one or more of the Subaccounts of the Account and/or the GIA. The
Contract offers a combination of investment options, both variable and fixed.
Investments in the Subaccounts provide returns which are variable and are
contingent upon the performance of the underlying Fund. Allocations to the GIA
produces guaranteed interest earnings subject to certain conditions. Please
refer to "Appendix A" for detailed information regarding the GIA. You also may
select from a number of different variable annuity and fixed annuity payout
options, some of which, offer retirement income payments which you cannot out
live. (See "The Annuity Period--Annuity Options.") Contracts are available to
fund both non-tax qualified and certain tax qualified retirement plans. The
Contract is designed to provide retirement income at a future date by the
investment of funds on a tax-deferred basis. Generally, any earnings on your
investment will accumulate without being subject to annual income tax until
withdrawn. The Contract provides for payment upon the death of either the Owner
or the Annuitant anytime before the Maturity Date. Contracts may not be
available for sale in all states.
INVESTMENT FEATURES
FLEXIBLE PAYMENTS
You may make payments any time until the Maturity Date that you select
subject to certain limitations. You can vary the amount and frequency of your
purchase payments. Other than the Minimum Initial Purchase Payment there is no
scheduled or required purchase payment.
CONTRIBUTIONS
For non-tax qualified plans and Individual Retirement Annuities (IRA's)
including SEP IRAs and SIMPLE IRAs, you must make a Minimum Initial Purchase
Payment of at least $1,000 to put a Contract in effect. If your payments are
made by our monthly bank draft investment program, you are allowed to pay a
reduced Minimum Initial Purchase Payment amount of at least $25.
ALLOCATION OF PREMIUMS AND CONTRACT VALUE
Your premium will be invested in one or more of the Subaccounts of the
Account and/or the GIA. The assets of the Subaccounts are used to purchase, at
Net Asset Value, shares of a designated Fund. You also may change your
allocation to the various investment options by changing your allocation
percentages or by making transfers among the Subaccounts of the Account and/or
the GIA.
IN GENERAL, YOU CAN ONLY MAKE ONE TRANSFER PER YEAR FROM THE GIA. THE AMOUNT
THAT CAN BE TRANSFERRED OUT IS LIMITED TO THE GREATER OF $1,000 OR 25% OF THE
CONTRACT VALUE IN THE GIA AS OF THE DATE OF THE TRANSFER. IF YOU ELECT THE
SYSTEMATIC TRANSFER PROGRAM, APPROXIMATELY EQUAL AMOUNTS MAY BE TRANSFERRED OUT
OF THE GIA. ALSO, THE TOTAL CONTRACT VALUE ALLOCATED TO THE GIA MAY BE
TRANSFERRED OUT OF THE GIA TO ONE OR MORE OF THE SUBACCOUNTS OF THE ACCOUNT.
Transfers into the GIA and/or among the Subaccounts of the Account may be
made anytime. Transfers from the GIA are subject to the rules discussed in
Appendix A and under Transfers.
The Contract Value allocated to the Account is not guaranteed and will vary
with the investment performance of the underlying Fund. The Contract Value
allocated to the GIA will depend on deductions taken from the GIA and will
accumulate at rates we determine (4% minimum for the GIA).
WITHDRAWALS
You may partially or fully surrender the Contract anytime for its Contract
Value less any applicable sales charge and premium tax. Prior to the Maturity
Date, you may withdraw up to 10% of the Contract Value each Contract Year
without a sales charge. See "Surrender of Contract; Partial Withdrawals."
DEATH BENEFIT
The Contract provides for payment on the death of the Owner or the Annuitant
at any time prior to the Maturity Date of the Contract. The amount payable will
be different depending on whether the Annuitant or Owner/Annuitant has attained
age 85. If the Annuitant and Owner are not the same, the amount payable upon the
death of the Owner will be equal to the greater of: (a) 100% of purchase
payments made, less withdrawals or (b) the Contract Value (no surrender charge
is imposed), less any deferred premium tax. (See, "Payment Upon Death Before
Maturity.") 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.")
DEDUCTIONS AND CHARGES
GENERALLY
No deductions are made from purchase payments. A deduction for sales charges
may be taken from the proceeds when a Contract is surrendered or when an amount
is withdrawn, if assets have not been held under the Contract for a certain
period of time. However, no deduction for sales charges will be taken after the
Annuity Period has begun, unless unscheduled withdrawals are made under Annuity
Options K or L. If a sales charge is imposed, it is imposed on a first-in,
first-out basis. No sales charge will be imposed in the event that the Annuitant
or Owner dies before the date that annuity payments will commence. The total
deferred sales charges on a Contract will never exceed 9% of the total purchase
payments (see "Sales Charges").
FROM THE ACCOUNT
There is a mortality and expense risk fee and a daily administrative
fee assessed against the Account. The mortality and expense risk fee
is 1.25%. (See "Charges for Mortality & Expense Risks.") The daily
administrative fee is equal to 0.125% on an annual basis. (See
"Charges for Administrative Services.")
OTHER CHARGES OR DEDUCTIONS
In most states, premium taxes are imposed when a Contract is annuitized
rather than when purchase payments are made by the Contract Owner. PHL Variable
will reimburse itself for such taxes on
7
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the date of a partial withdrawal, surrender of the Contract, Maturity Date or
payment of death proceeds (see "Premium Tax").
In addition, certain charges are deducted from the assets of the Funds. For
investment management services, each Series of a Fund pays the investment
manager a separate monthly fee calculated on the basis of its average daily net
assets during the year.
For a more complete description of the fees chargeable under the
Contract, see "Deductions and Charges."
VARIATIONS
PHL Variable is subject to laws and regulations in every state in which the
Contract is sold. As a result, the terms of the Contract may vary from state to
state.
ADDITIONAL INFORMATION
FREE LOOK PERIOD
An Owner may surrender a Contract for any reason within 10 days after its
receipt and receive in cash the adjusted value of the initial purchase payment.
The Owner may receive more or less than the initial payment depending on
investment experience within the Subaccounts during the 10-day period, unless
the Contract is issued with a Temporary Money Market Allocation Amendment, in
which case the initial purchase payment is refunded. If the initial purchase
payment, or any portion thereof, was allocated to the GIA, that payment (or
portion) and any earned interest is refunded. See "Free Look Period."
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.
SPECIAL TERMS
- --------------------------------------------------------------------------------
As used in this Prospectus, the following terms have the indicated meanings:
ACCOUNT: PHL Variable Accumulation Account.
ACCOUNT VALUE: The value of all assets held in the Account.
ACCUMULATION UNIT: A standard of measurement with respect to each Subaccount
used in determining the value of a Contract and the interest in the Subaccounts
prior to the commencement of annuity payments.
ACCUMULATION UNIT VALUE: The value of one Accumulation Unit was set at $1.0000
on the date assets were first allocated to each Subaccount. The value of one
Accumulation Unit on any subsequent Valuation Date is determined by multiplying
the immediately preceding Accumulation Unit Value by the applicable Net
Investment Factor for the Valuation Period ending on such Valuation Date.
ANNUITANT: The person whose life is used as the measuring life under the
Contract. 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 OWNER (OWNER, YOU, YOUR): 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 in the application, the Annuitant will be the Owner.
CONTRACT VALUE: Prior to the Maturity Date, the sum of all Accumulation Units
held in the Subaccounts of the Account and the value held in the GIA.
FIXED PAYMENT ANNUITY: A benefit providing periodic payments of a fixed dollar
amount throughout the Annuity Period that does not vary with or reflect the
investment performance of any Subaccount.
FUND(S): The Phoenix Edge Series Fund, Wanger Advisors Trust and the Templeton
Variable Products Series Fund.
GIA: An allocation option under which premium amounts are guaranteed to earn a
fixed rate of interest. Excess interest also may be credited, in the sole
discretion of PHL Variable.
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, $1,000, $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.
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 (OUR, US, COMPANY): PHL Variable Insurance Company.
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VALUATION DATE: A Valuation Date is every day the New York Stock Exchange is
open for trading.
VARIABLE PAYMENT ANNUITY: An annuity providing payments that vary in amount
after the first payment is made, in accordance with the investment experience of
the selected Subaccounts.
VPMO: The Phoenix Variable Products Mail Operation division of Phoenix that
receives and processes incoming mail for Variable Products Operations.
VPO: Variable Products Operations.
PERFORMANCE HISTORY
- --------------------------------------------------------------------------------
From time to time the Account may include the performance history of any or
all Subaccounts in advertisements, sales literature or reports. PERFORMANCE
INFORMATION ABOUT EACH SUBACCOUNT IS BASED ON PAST PERFORMANCE ONLY AND IS NOT
AN INDICATION OF FUTURE PERFORMANCE. Performance information may be expressed as
yield and effective yield of the Money Market Subaccount, as yield of the
Multi-Sector Subaccount and as total return of any Subaccount. For the
Multi-Sector Subaccount, quotations of yield will be based on all investment
income per unit earned during a given 30-day period (including dividends and
interest), less expenses accrued during the period ("net investment income")
and are computed by dividing the net investment income by the maximum offering
price per unit on the last day of the period.
When a Subaccount advertises its total return, it will usually be
calculated for one year, five years and ten years or since inception if the
Subaccount has not been in existence for at least ten years. Total return is
measured by comparing the value of a hypothetical $1,000 investment in the
Subaccount at the beginning of the relevant period to the value of the
investment at the end of the period, assuming the reinvestment of all
distributions at net asset value and the deduction of all applicable Contract
charges except for premium taxes (which vary by state) at the beginning of the
relevant period.
For those Subaccounts within the Account that have not been available for
one of the quoted periods, the standardized average annual total return
quotations may show the investment performance such Subaccount would have
achieved (reduced by the applicable charges) had it been available to invest in
shares of the Fund for the period quoted.
AVERAGE ANNUAL TOTAL RETURN FOR THE PERIOD ENDED 12/31/96
---------------------------------------------------------
COMMENCEMENT LIFE OF
SUBACCOUNT DATE 1 YEAR 5 YEARS 10 YEARS FUND
- ---------- ---- ------ ------- -------- ----
Multi-Sector..... 1/1/83 4.73% 8.81% 8.17% 9.39%
Balanced......... 5/1/92 3.00% N/A N/A 7.93%
Allocation....... 9/17/84 1.59% 7.29% 9.79% 10.96%
Growth........... 1/1/83 4.89% 12.45% 14.38% 16.66%
International.... 5/1/90 10.56% 7.40% N/A 6.74%
Money Market..... 10/10/82 (2.16%) 2.23% 4.23% 4.93%
Real Estate...... 5/1/95 24.01% N/A N/A 24.72%
U.S. Small Cap... 5/1/95 36.64% N/A N/A 30.96%
Int'l. Small Cap. 5/1/95 23.03% N/A N/A 34.42%
Theme............ 1/29/96 N/A N/A N/A 2.12%
Asia............. 9/20/96 N/A N/A N/A (6.52%)
TPT Allocation(2) 11/28/88 10.74% 11.92% N/A 10.73%
TPT Stock(2)..... 11/4/88 14.07% 14.43% N/A 11.66%
TPT Int'l(2)..... 5/1/92 15.58% N/A N/A 12.97%
TPT Dev. Mkts.(2) 9/15/96 N/A N/A N/A (5.45%)
ANNUAL TOTAL RETURN(1)
----------------------
MULTI- ALLO- INTER- MONEY
YEAR SECTOR BALANCED CATION GROWTH NATIONAL MARKET
- ---- ------ -------- ------ ------ -------- ------
1983.... 4.56% N/A N/A 31.10% N/A 6.85%
1984.... 9.82% N/A (1.51%) 9.16% N/A 8.72%
1985.... 18.97% N/A 25.61% 33.09% N/A 6.56%
1986.... 17.67% N/A 14.11% 18.83% N/A 5.06%
1987.... (0.30%) N/A 11.02% 5.47% N/A 5.05%
1988.... 8.98% N/A 0.94% 2.50% N/A 5.98%
1989.... 6.76% N/A 18.28% 34.35% N/A 7.71%
1990.... 3.78% N/A 4.32% 2.62% (8.98%) 6.74%
1991.... 17.96% N/A 27.56% 40.81% 18.11% 4.53%
1992.... 8.58% 8.43% 9.15% 8.79% (14.03%) 2.16%
1993.... 14.35% 7.13% 9.50% 18.08% 36.59% 1.47%
1994.... (6.78%) (4.17%) (2.75%) 0.08% (1.31%) 2.42%
1995.... 21.89% 21.69% 16.63% 29.13% 8.12% 4.23%
1996.... 10.89% 9.06% 7.57% 11.06% 17.05% 3.60%
REAL U.S. INT'L
YEAR ASIA ESTATE SMALL CAP SMALL CAP THEME
- ---- ---- ------ --------- --------- -----
1995.... N/A 16.75% 14.97% 33.35% N/A
1996.... (0.23%) 31.31% 44.64% 30.24% 8.98%
TPT TPT TPT TPT
YEAR ALLOCATION(2) STOCK(2) INT'L(2) DEV. MKTS.(2)
- ---- ------------- -------- -------- -------------
1989...... 11.77% 13.12% N/A N/A
1990...... (9.24%) (12.28%) N/A N/A
1991...... 26.01% 25.81% N/A N/A
1992...... 6.62% 5.68% (7.00%) N/A
1993...... 24.46% 32.25% 45.37% N/A
1994...... (4.31%) (3.56%) (3.59%) N/A
1995...... 20.90% 23.57% 14.19% N/A
1996...... 17.26% 20.77% 22.37% 0.96%
(1) Sales charges have not been deducted from the Annual Total Returns.
(2) Because Templeton Class 2 shares were not offered until May 1, 1997,
performance shown for periods prior to that date represents the historical
results of Class 1 shares. These returns have not been adjusted to reflect
the Rule 12b-1 fee for Class 2 shares, which is .25% annually. There was no
Rule 12b-1 fee for Class 1 shares. The returns for Class 2 shares, had they
been available during the period shown, would have been reduced by the
amount of the Rule 12b-1 fees, compounded over the relevant period, and
will be affected in the future by these fees.
THESE RATES OF RETURN ARE NOT AN ESTIMATE OR GUARANTEE OF FUTURE PERFORMANCE.
Current yield for the Money Market Subaccount is based upon the income
earned by the Subaccount over a seven-day period and then annualized, i.e.,
the income earned in the period is assumed to be earned every seven days over a
52-week period and stated as a percentage of the investment. Effective yield is
calculated similarly but when annualized, the income earned by the investment is
assumed to be reinvested in Subaccount Units and thus compounded in the course
of a 52-week period. Yield and effective yield reflect the recurring charges on
the Account level including the annual administrative fee.
Yield calculations of the Money Market Subaccount used for illustration
purposes are based on the consideration of a hypothetical Contract Owner's
account having a balance of exactly one Unit at the beginning of a seven-day
period, which period will end on the date of the most recent financial
statements. The yield for the Subaccount during this seven-day period will be
the change in the value of the hypothetical Contract Owner's account's
original unit. The following is an example of this yield quotation for the
Money Market Subaccount based on a seven-day period ending December 31, 1996.
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<PAGE>
Example:
Value of hypothetical pre-existing account with exactly one unit
at the beginning of the period:................... 1.050796
Value of the same account (excluding capital changes) at the
end of the seven-day period:...................... 1.051525
Calculation:
Ending account value.............................. 1.051525
Less beginning account value...................... 1.050796
Net change in account value....................... 0.000729
Base period return:
(adjusted change/beginning account value)......... 0.000694
Current yield = return x (365/7) =.................. 3.62%
Effective yield = [(1 + return)365/7] -1 =.......... 3.68%
The current yield and effective yield information will fluctuate, and
publication of yield information may not provide a basis for comparison with
bank deposits, other investments which are insured and/or pay a fixed yield for
a stated period of time, or other investment companies, due to charges which
will be deducted on the Account level.
A Subaccount's performance may be compared to that of the Consumer Price
Index or various unmanaged equity or bond indices such as the Dow Jones
Industrial Average, the Standard & Poor's 500 Composite Stock Price Index ("S&P
500"), and the Europe Australia Far East Index, and also may be compared to the
performance of the other variable annuity accounts as reported by services such
as Lipper Analytical Services, Inc. ("Lipper"), CDA Investment Technologies,
Inc. ("CDA") and Morningstar, Inc. or in other various publications. Lipper and
CDA are widely recognized independent rating/ranking services. A Subaccount's
performance also may be compared to that of other investment or savings
vehicles.
Advertisements, sales literature and other communications may contain
information about any Series' or Advisers' current investment strategies and
management style. Current strategies and style may change to respond to a
changing market and economic conditions. From time to time, the Series may
discuss specific portfolio holdings or industries in such communications. To
illustrate components of overall performance, the Series may separate their
cumulative and average annual returns into income results and capital gains or
losses; or cite separately as a return figure the equity or bond portion of a
Series' portfolio; or compare a Series' equity or bond return figure to
well-known indices of market performance including, but not limited to, the S&P
500, Dow Jones Industrial Average, First Boston High Yield Index and Solomon
Brothers Corporate and Government Bond Indices.
Each Fund's Annual Report, available upon request and without charge,
contains a discussion of the performance of the Funds and a comparison of that
performance to a securities market index.
THE VARIABLE ACCUMULATION ANNUITY
- --------------------------------------------------------------------------------
The individual deferred variable accumulation annuity contract (the
"Contract") issued by PHL Variable may be significantly different from a fixed
annuity contract in that, unless the GIA is selected, it is the Owner and
Annuitant under a Contract who assume the risk of investment gain or loss rather
than PHL Variable. To the extent that payments are not allocated to the GIA,
the amounts which will be available for annuity payments under a Contract will
depend on the investment performance of the amounts allocated to the
Subaccounts of the 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/or the GIA and monthly annuity payments will vary in
accordance with the investment experience of the selected Subaccounts.
However, a fixed annuity may be elected, in which case 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 Contract Value
among the Subaccounts or the GIA.
PHL VARIABLE AND THE ACCOUNT
- --------------------------------------------------------------------------------
PHL Variable is a wholly-owned indirect subsidiary of Phoenix Home Life
Mutual Insurance Company. Its Executive Office is located at One American Row,
Hartford, Connecticut 06102 and its main administrative office is located at 100
Bright Meadow Boulevard, Enfield, Connecticut 06083-1900. PHL Variable is a
Connecticut stock company formed on April 24, 1981. On December 31, 1996, it
had total assets of $189.5 million. PHL Variable sells variable annuity
contracts through its own field force of agents and through brokers. Its
operations are currently conducted in 36 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 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 GIA 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 GIA, see Appendix A.
THE PHOENIX EDGE SERIES FUND
- --------------------------------------------------------------------------------
Certain Subaccounts 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 and Asia Series) is Phoenix Investment Counsel, Inc. ("PIC").
The investment adviser of the Real Estate Series is Phoenix Realty Securities,
Inc. ("PRS") and for the Asia Series, the adviser is Phoenix-Aberdeen
International Advisors, LLC ("PAIA"). The investment objective of each of the
Series of the Fund is as follows:
(1) MULTI-SECTOR FIXED INCOME ("MULTI-SECTOR") SERIES, FORMERLY THE "BOND"
SERIES: The investment objective of the
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<PAGE>
Multi-Sector 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 invests principally in
common stocks of corporations believed by management to offer growth
potential.
(4) STRATEGIC ALLOCATION ("ALLOCATION") SERIES, FORMERLY THE
"TOTAL RETURN" SERIES: The investment objective of the
Allocation 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 Allocation
Series invests in stocks, bonds and money market
instruments in accordance with the 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 objectives of the Balanced Series
are 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 SECURITIES ("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 trusts (REITs) and companies that operate,
develop, manage and/or invest in real estate located primarily
in the United States.
(8) STRATEGIC THEME ("THEME") SERIES: The investment objective of the
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.
(9) ABERDEEN NEW ASIA ("ASIA") SERIES: The investment objective of the Asia
Series is to seek long-term capital appreciation. It is intended that
this Series will invest primarily in a diversified portfolio of equity
securities of issuers organized and principally operating in Asia,
excluding Japan.
WANGER ADVISORS TRUST
- --------------------------------------------------------------------------------
The investment adviser of the U.S. Small Cap and International Small Cap
Series is Wanger Asset Management, L.P. The investment objective of each of
the Series is as follows:
(1) WANGER U.S. SMALL CAP ("U.S. SMALL CAP") SERIES: The
investment objective of the U.S. Small Cap Series is to
provide long-term growth. The U.S. Small Cap Series will
invest primarily in securities of U.S. companies with total
common stock market capitalization of less than $1 billion.
(2) WANGER INTERNATIONAL SMALL CAP ("INTERNATIONAL SMALL CAP") SERIES: The
investment objective of the International Small Cap Series is to provide
long-term growth. The International Small Cap Series will invest
primarily in securities of non-U.S. companies with total common stock
market capitalization of less than $1 billion.
TEMPLETON VARIABLE PRODUCTS SERIES FUND
- --------------------------------------------------------------------------------
The investment adviser for the Templeton Stock, Templeton Asset
Allocation and Templeton International Series is Templeton
Investment Counsel, Inc. ("TICI"). Templeton Asset Management, Ltd.
is the investment adviser for the Templeton Developing Markets
Series. The investment objectives and policies of each Series is as
follows:
(1) TEMPLETON STOCK ("TPT STOCK") SERIES: Pursues capital growth through a
policy of investing primarily in common stocks issued by companies,
large and small, in various nations throughout the world.
(2) TEMPLETON ASSET ALLOCATION ("TPT ALLOCATION") SERIES:
Seeks a high level of total return through a flexible policy of
investing in stocks of companies in any nation, debt
securities of companies and governments of any nation, and
in money market instruments. Changes in the asset mix will
be made in an attempt to capitalize on total return potential
produced by changing economic conditions throughout the
world.
(3) TEMPLETON INTERNATIONAL ("TPT INTERNATIONAL") SERIES:
Seeks long-term capital growth through a flexible policy of
investing in stocks and debt obligations of companies and
governments outside the United States. Any income realized
will be incidental. Although the Fund generally invests in
common stock, it also may invest in preferred stocks and
certain debt securities such as convertible bonds which are
rated in any category by S&P or Moody's or which are
unrated by any rating agency.
(4) TEMPLETON DEVELOPING MARKETS ("TPT DEV. MKTS.") SERIES:
Seeks long-term capital appreciation by investing primarily
11
<PAGE>
in equity securities of issuers in countries having developing
markets.
Each Series will be subject to the market fluctuations and risks inherent in
the ownership of any security and there can be no assurance that any Series'
stated investment objective will be realized.
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 IRAs, the minimum initial
purchase payment is $25 and for contracts purchased in connection with
tax-qualified or employer sponsored plans, a minimum annual payment of $1,000 is
required. In addition, a Contract Owner may authorize his bank to draw $25 or
more from his personal checking account monthly to purchase Units in any
available Subaccount or the GIA. The amount the Contract Owner designates will
be automatically invested on the date the bank draws on his account. If this
"check-o-matic" privilege is elected, the minimum initial purchase payment is
$25. This payment must accompany the application. 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
Subaccount or the GIA, or a combination thereof, in the proportion specified in
the application for the Contract or as indicated by the Owner from time to time.
Initial purchase payments may, under certain circumstances, be allocated to the
Money Market Subaccount (see "Free Look Period"). Changes in the allocation of
purchase payments will be effective as of receipt by 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 reimburse itself only
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 this Contract may be taken from proceeds of
withdrawals from, or complete surrender of, the Contract if assets are not held
under the Contract for a certain period of time (see chart below). No sales
charge will be taken from death proceeds or 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, up to 10% of the Contract Value
may be withdrawn in a Contract year, either in a lump sum or by multiple
scheduled or unscheduled partial surrenders, without the imposition of a sales
charge. During the first Contract year, the 10% withdrawal without a sales
charge is only available on Contracts issued on or after May 1, 1996 and will be
determined based on the Contract Value at the time of the first partial
withdrawal. In all subsequent years, the 10% will be based on the previous
Contract anniversary value. The deduction for sales charges, expressed as a
percentage of the amount withdrawn in excess of the 10% allowable amount, is
as follows:
AGE OF PURCHASE PAYMENT DEFERRED
IN COMPLETE YEARS FROM SALES CHARGE AS A
PAYMENT DATE UNIT PERCENTAGE OF
RELEASED WAS CREDITED AMOUNT WITHDRAWN
--------------------- -----------------
0 7%
1 6%
2 5%
3 4%
4 3%
5 2%
6 1%
7 and over 0%
In the event that the Annuitant or Owner dies before the Maturity Date of
the Contract, the sales charge described in the table above will not apply.
The 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 Subaccounts and the GIA 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
Contract. 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 Subaccount the daily equivalent of .40%
annually of the current value of the Subaccount's net assets for mortality
risks assumed and the daily equivalent of .85% annually for expense risks
assumed. (See the Contract Schedule Pages). No mortality and expense risk
charge is deducted from the GIA. If the percentage charges prove insufficient
to cover actual insurance underwriting costs and excess administrative costs,
then the loss will be borne by 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 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 Contract 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."
To cover its fixed cost of administration, such as preparation of billings
and statements of account, PHL Variable generally charges each Contract $35 each
year prior to the Contract's Maturity Date. A reduced charge may apply. This
cost-based charge is deducted from each Subaccount and the GIA holding the
assets of the Owner or on a pro rata basis from two or more Subaccounts or the
GIA in relation to their values under the Contract, and is not subject to
increase but may be subject to decrease. This charge is deducted on the Contract
anniversary date for services rendered since the preceding Contract anniversary
date. Upon surrender of a Contract, applicable, the entire annual administrative
charge of $35 is deducted regardless of when the surrender occurs.
If the Owner elects Payment Options I, J, K, M or N, the annual
administrative charge after the Maturity Date will be deducted from each annuity
payment in equal amounts.
PHL Variable may reduce the annual administrative charges for Contracts
issued under tax-qualified plans other than IRAs and 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.
PHL Variable also charges each Subaccount available through a Contract the
daily equivalent of 0.125% on an annual basis of the accumulated value of the
Subaccount to cover its variable costs of administration (such as printing and
distribution of materials pertaining to Contract Owner meetings). This
cost-based fee is not deducted from the GIA.
No sales or annual administrative charges will be deducted for Contracts
sold to registered representatives of the principal underwriter or to officers,
directors and employees of 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
RATE FOR FIRST RATE FOR NEXT EXCESS OVER
SERIES $250,000,000 $250,000,000 $500,000,000
- ------ ------------ ------------ ------------
Money Market........ .40% .35% .30%
Multi-Sector........ .50% .45% .40%
Balanced............ .55% .50% .45%
Allocation.......... .60% .55% .50%
Growth.............. .70% .65% .60%
International....... .75% .70% .65%
Theme............... .75% .70% .65%
PHOENIX-ABERDEEN INTERNATIONAL ADVISORS, LLC
--------------------------------------------
SERIES
- ------
Asia............... 1.00%
PHOENIX REALTY SECURITIES, INC.
-------------------------------
RATE FOR
RATE FOR FIRST RATE FOR NEXT EXCESS OVER
SERIES $1,000,000,000 $1,000,000,000 $2,000,000,000
- ------ -------------- -------------- --------------
Real Estate........ .75% .70% .65%
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WANGER ASSET MANAGEMENT, L.P.
-----------------------------
RATE FOR
RATE FOR FIRST RATE FOR NEXT EXCESS OVER
SERIES $100,000,000 $150,000,000 $250,000,000
- ------ ------------ ------------ ------------
U.S. Small Cap.... 1.00% .95% .90%
International
Small Cap......... 1.30% 1.20% 1.10%
TEMPLETON INVESTMENT COUNSEL, INC.
----------------------------------
RATE FOR RATE FOR
RATE UP TO $200,000,000 UP EXCESS OVER
SERIES $200,000,000 TO $1,300,000,00 $1,300,000,000
- ------ ------------ ---------------- --------------
Stock............. .75% .65% .60%
TPT Allocation.... .65% .585% .52%
TPT International. .75% .65% .60%
TEMPLETON ASSET MANAGEMENT, LTD.
--------------------------------
SERIES
- ------
TPT Dev. Mkts..... 1.25%
The TPT Stock, TPT Asset Allocation, TPT International and TPT Dev. Mkts.
Series are subject to a Distribution Plan under which the Series may pay
distributors, the insurance company or others for activities primarily intended
to sell contracts offering these Series. Payments under the Plan may not exceed
.25% per year of each Series' average daily net assets.
Each Series pays a portion or all of its other operating expenses other than
the management fees: the Growth, Multi-Sector, Allocation, Money Market and
Balanced Series will pay up to .15%; the Real Estate, Theme and Asia Series will
pay up to .25%; the International Series will pay up to .40%; the U.S. Small Cap
Series will pay up to .50%; and the International Small Cap Series will pay up
to .60% of its average net assets annually. Any amounts in excess are reimbursed
by the Adviser for the Series and/or PHL Variable. In the absence of such
reimbursements, the total operating expenses as a percentage of the average net
assets of each of the foregoing Series, as of December 31, 1996, are: .72%,
.67%, .70%, .55%, .68%, 1.43%, 1.28%, 2.87%, 1.04%, 1.21% and 1.79%,
respectively.
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 VPMO, the initial purchase payment will be
applied within two days of the completion of the application. In the event that
VPO does not accept the application within five business days or if an order
form is not completed within five business days of receipt by VPMO, then the
purchase payment will be immediately returned. If the GIA is chosen,
additional purchase payments are deposited on the date of receipt of such
purchase payment at VPMO. If one or more of the Subaccounts is chosen,
additional purchase payments are applied to the purchase of Accumulation Units
of the Subaccount(s) chosen, at the value of such Units next determined after
the receipt of such purchase payment at VPMO. The number of Accumulation Units
of a Subaccount purchased with a specific purchase payment will be determined
by dividing the applied purchase payment by the value of an Accumulation Unit in
that Subaccount next determined after receipt of the purchase payment. The
value of the Accumulation Units of a Subaccount will vary depending upon the
investment performance of the applicable Series of the Funds, the expenses
charged against the Fund and the charges and deductions made against the
Subaccount.
ACCUMULATION UNIT VALUES
At any date prior to the Maturity Date of the Contract, the total value of
the Accumulation Units in a Subaccount which has been credited under a
Contract can be computed by multiplying the number of such Units by the
appropriate value of an Accumulation Unit in effect for such date. The value of
an Accumulation Unit on a day other than a Valuation Date is the value of the
Accumulation Unit on the next Valuation Date. The number of Accumulation Units
in each Subaccount credited under each Contract and their current value will
be reported to the Owner at least annually.
TRANSFERS
A Contract Owner may, at any time but no later than 30 days prior to the
Maturity Date of a Contract, elect to transfer all or any part of the Contract
Value among one or more Subaccounts or the GIA. Any such transfer from a
Subaccount will result in the redemption of Accumulation Units and, if another
Subaccount is selected, in the purchase of Accumulation Units on the basis of
the respective values next determined after the receipt by VPMO of written
notice of election in a form satisfactory to PHL Variable. A transfer among
Subaccounts or the GIA does not automatically change the payment allocation
schedule of a contract.
A Contract Owner also may request transfers and changes in payment
allocations among available Subaccounts or the GIA by calling VPO at
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 also will
be accepted on behalf of the Contract Owner from his or her registered
representative. PHL Variable and Phoenix Equity Planning Corporation ("PEPCO")
will employ reasonable procedures to confirm that telephone instructions are
genuine. They will require verification of account information and will record
telephone instructions on tape. All telephone transfers and allocation changes
will be confirmed in writing to the Contract Owner. To the extent that
procedures reasonably designed to prevent unauthorized transfers are not
followed, PHL Variable and PEPCO may be liable for following telephone
instructions for transfers that prove to be fraudulent. However, the Contract
Owner would bear the risk of loss resulting from instructions entered by an
unauthorized third party that PHL Variable and PEPCO reasonably believe to be
genuine. These telephone privileges may be modified or terminated at any time
and during times of extreme market volatility, may be difficult to exercise. In
such cases a Contract Owner should submit a written request.
A Contract Owner also may elect to transfer funds automatically among the
Subaccounts or the GIA on a monthly, quarterly, 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
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<PAGE>
or $300 annually. A Contract Owner must have an initial value of
$2,000 in the GIA or the Subaccount that funds will be transferred from
(sending Subaccount), and if the value in that Subaccount or the GIA drops
below the elected transfer amount, the entire remaining balance will be
transferred and no more systematic transfers will be processed. Funds may be
transferred from only one sending Subaccount or the GIA, but may be allocated
to multiple receiving Subaccounts. Under the Systematic Transfer Program,
Contract Owners may transfer approximately equal amounts from the GIA over a
minimum 18-month period.
Upon completion of the Systematic Transfer Program, the Contract Owner must
notify VPO at (800) 447-4312 or in writing to VPMO to implement another
Systematic Transfer Program.
All transfers under the Systematic Transfer Program will be executed on the
basis of the respective values as of the first of the month 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.
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 GIA. Non-systematic transfers from the GIA will be effectuated on the
date of receipt by VPMO except as otherwise may be requested by the Contract
Owner. For non-systematic transfers, the amount that may be transferred from the
GIA at any one time cannot exceed the greater of $1,000 or 25% of the Contract
Value in the GIA at the time of transfer.
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, PHL Variable 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, PHL Variable
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 GIA AS DESCRIBED ABOVE AND IN APPENDIX A.
PHL Variable reserves the right to limit the number of Subaccounts you
may elect to a total of 18 at any one time and/or over the life of the Contract
unless required to be less to comply with changes in federal and/or state
regulation, including tax, securities and insurance law. As of the date of this
Prospectus, this limitation has no effect because fewer Subaccounts are
offered.
SURRENDER OF CONTRACT; PARTIAL WITHDRAWALS
If the Annuitant is living, amounts held under the Contract may be withdrawn
in whole or in part prior to the Maturity Date, or after the Maturity Date under
Annuity Options K or L. Prior to the Maturity Date, the Contract Owner may
withdraw up to 10% of the Contract Value in a Contract year, either in a lump
sum or by multiple scheduled or unscheduled partial surrenders, without the
imposition of a sales charge. During the first Contract year, the 10% withdrawal
without a sales charge is available only on Contracts issued on or after May 1,
1996 and will be determined based on the Contract Value at the time of the first
partial withdrawal. In all subsequent years, the 10% will be based on the
previous Contract anniversary value. A signed written request for withdrawal
must be sent to VPMO. If the Contract Owner has not yet reached age 59 1/2, a
10% penalty tax may apply on taxable income withdrawn. (See "Federal Income
Taxes.") The appropriate number of Accumulation Units of a Subaccount will be
redeemed at their value next determined after the receipt by VPMO of a written
notice in a form satisfactory to PHL Variable. Unless the Owner designates
otherwise, Accumulation Units redeemed in a partial withdrawal will be redeemed
in each Subaccount in the same proportion as the value of the Accumulation
Units of the Contract is then allocated among the Subaccounts. Also, Contract
Values in the GIA will be withdrawn in a partial withdrawal in the same
proportion as the Contract Value is then allocated to the GIA, unless the
Owner designates otherwise. The redemption value of Accumulation Units may be
more or less than the purchase payments applied under the Contract to purchase
the Accumulation Units, depending upon the investment performance in each
Subaccount. The resulting cash payment will be made in a single sum, ordinarily
within seven days after receipt of such notice. However, redemption and payment
may be delayed under certain circumstances (see "Deferment of Payment"). There
may be adverse tax consequences to certain surrenders and partial withdrawals
(see "Surrenders or Withdrawals Prior to the Contract Maturity Date"). Certain
restrictions on redemptions are imposed on Contracts used in connection with
Internal Revenue Code Section 403(b) plans (see "Qualified Plans"; "Tax
Sheltered Annuities"). A deduction for sales charges may be imposed on partial
withdrawals from, and complete surrender of, a Contract (see "Sales Charges").
Any sales charge is imposed on a first-in, first-out basis.
Any request for a withdrawal from, or complete surrender of, a Contract
should be mailed to Phoenix Variable Products Mail Operations, PO Box 8027,
Boston, Massachusetts 02266-8027.
LAPSE OF CONTRACT
If on any Valuation Date the Contract Value is zero, or the premium tax
reimbursement due on surrender or partial withdrawal is greater than or equal to
the Contract Value, unless any Contract Value has been applied under one of the
variable payment options, 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/Annuitant dies before the Contract Maturity Date, the death
benefit will be paid under the Contract to the Owner/Annuitant's beneficiary. If
the Owner and the Annuitant are not the same and the Annuitant dies prior to the
Maturity Date, the contingent Annuitant
15
<PAGE>
becomes the Annuitant. If there is no contingent Annuitant, the death benefit
will be paid to the Annuitant's beneficiary. Upon the death of the Annuitant or
an Owner/Annuitant who has not yet attained age 85, the death benefit (less any
deferred premium tax) is calculated according to the following method:
1. Death occuring in the first Contract Year -- the greater of:
a. 100% of purchase payments, less any withdrawals; or
b. the Contract Value next determined following receipt of a
certified copy of the death certificate at VPMO.
2. Death occuring in the second Contract Year or any subsequent
Contract Year -- the greater of:
a. the death benefit at the end of the previous Contract Year,
plus 100% of purchase payments, less any withdrawals
made since that date; or
b. the Contract Value next determined following receipt of a
certified copy of the death certificate at VPMO.
After the Annuitant's age 85, the death benefit (less any deferred premium
tax) equals the Contract Value (no surrender charge is imposed) next determined
following receipt of a certified copy of the death certificate at VPMO.
Upon the death of an Owner who is not the Annuitant, provided that there is
no surviving joint Owner, the death proceeds will be paid to the Owner's
Beneficiary. The amount of death benefit payable is equal to the greater of:
a. 100% of purchase payments, less withdrawals; or
b. the Contract Value next determined following receipt of a
certified copy of the death certificate at VPMO.
If the Owner or Owner/Annuitant's beneficiary elects to defer payment of the
death proceeds for a period longer than one Contract Year, the death proceeds
that will be payable upon distribution is equal to the greater of:
a. 100% of purchase payments, less withdrawals; or
b. the Contract Value next determined following written
authorization for distribution and; receipt of a certified
copy of the death certificate at VPMO.
Payments will be made in a single sum to the beneficiary designated by the
Owner prior to the Annuitant's death unless an optional method of settlement had
been elected by the Owner. If an optional method of settlement had not been
elected by the Owner, the beneficiary may elect an optional method of settlement
in lieu of a single sum. No deduction is made for sales or other expenses upon
such election (see "Sales Charges"). Notwithstanding the foregoing, if the
amount to be paid is less than $2,000, it will be paid in a single sum (see
"Annuity Options"). Depending upon state law, the payment to the beneficiary may
avoid probate and the death benefit may be reduced by any premium tax due (see
"Premium Tax"). See also "Distribution at Death" under Federal Income Taxes.
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 10 Year Period
Certain unless a different annuity option is elected by the Owner (see "Annuity
Options"). Under a Variable Payment Life Annuity with 10 Year Period Certain,
annuity payments, which may vary in amount based on the performance of the
Subaccount selected, are made monthly for life and, if the Annuitant dies within
ten years after the Maturity Date, the Annuitant's beneficiary will be paid the
payments remaining in the 10-year period. A different form of annuity may be
elected by the Owner prior to the Maturity Date. Once annuity payments have
commenced, the Annuity Option may not be changed.
If the amount to be applied on the Maturity Date is less than $2,000, 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 95th birthday unless
the Contract is issued in connection with certain qualified plans. Generally
under qualified plans, the Maturity Date must be such that distributions begin
no later than April 1st of the calendar year following the later of: (a) the
year in which the employee attains age 70 1/2; or (b) the calendar year in which
employee retires. The date set forth in (b) does not apply to an IRA.
The Maturity Date election shall be made by written notice and must be
received by VPMO 30 days before the provisional Maturity Date. If a Maturity
Date, which is different from the provisional Maturity Date of the Contract, is
not elected by the Owner, the provisional Maturity Date becomes the Maturity
Date. Particular care should be taken in electing the Maturity Date of a
Contract issued under a Tax Sheltered Annuity (TSA), a Keogh Plan or an IRA
plan. (See "Tax Sheltered Annuities," "Keogh Plans" and "Individual
Retirement Accounts.")
ANNUITY OPTIONS
Unless an alternative annuity payment option is elected on or before the
Maturity Date, the amounts held under a Contract on the Maturity Date
automatically will 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
16
<PAGE>
will be paid to the Annuitant's beneficiary. Each annuity payment will be based
upon the value of the Annuity Units credited to the Contract. The number of
Annuity Units in each Subaccount to be credited is based on the value of the
Accumulation Units in that Subaccount and the applicable annuity purchase rate.
The purchase rate differs according to the payment option selected and the age
of the Annuitant. The value of the Annuity Units will vary with the investment
performance of each Subaccount to which Annuity Units are credited based on an
assumed investment return of 4 1/2% per year. This rate is a fulcrum return
around which variable annuity payments will vary to reflect whether actual
investment experience of the Subaccount is better or worse than the assumed
investment return. The assumed investment return and the calculation of variable
income payments for such 10-year period certain variable payment life annuity
and for Options J and K described below are described in more detail in the
Contract and in the Statement of Additional Information.
In lieu of the 10-year period certain variable payment life annuity (see
"Option I--Variable Payment Life Annuity with 10 Year Period Certain"), the
Owner may, by written request received by VPMO on or before the Maturity Date
of the Contract, elect any of the other annuity payment options described below.
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 Subaccounts (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
10-year period certain will provide a total of 120 monthly payments. The
certain period may be 5, 10 or 20 years.
OPTION B--NON-REFUND LIFE ANNUITY
Provides a monthly income for the lifetime of the Annuitant. No income is
payable after the death of the Annuitant.
OPTION C--DISCONTINUED
OPTION D--JOINT AND SURVIVOR LIFE ANNUITY
Provides a monthly income for the lifetimes of both the Annuitant and a
joint annuitant as long as either is living. In the event of the death of the
Annuitant or joint annuitant, the annuity income will continue for the life of
the survivor. The amount to be continued to the survivor 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 Annuitant's
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
five years. The specified amount may not be greater than the total annuity
amount divided by five annual installment payments. If the Annuitant dies prior
to the end of the elected period certain, annuity payments will continue to the
Annuitant's beneficiary until the end of the elected period certain.
OPTION I--VARIABLE PAYMENT LIFE ANNUITY WITH 10 YEAR PERIOD CERTAIN
Unless another annuity option has been elected, this option will
automatically apply to any Contract proceeds payable on the Maturity Date. It
provides a variable payout monthly annuity based on the life of the Annuitant.
In the event of the death of the Annuitant, the annuity payments are made to the
Annuitant's beneficiary until the end of the 10-year period. The 10-year period
provides a total of 120 monthly payments. Payments will vary as to dollar
amount, based on the investment experience of the Subaccounts to which proceeds
are applied.
OPTION J--JOINT SURVIVOR VARIABLE PAYMENT LIFE ANNUITY WITH
10 YEAR PERIOD CERTAIN
Provides a variable payout monthly annuity while the Annuitant
and the designated joint annuitant are living and continues thereafter during
the lifetime of the survivor or, if later, until the end of a 10-year period
certain. Payments will vary as to dollar amount, based on the investment
experience of the Subaccounts to which proceeds are applied. 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. This option is not available for payment of any death benefit under
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
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unscheduled withdrawals 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
unscheduled withdrawals 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.
OTHER CONDITIONS
Federal income tax requirements currently applicable to most qualified
plans provide that the period of years guaranteed under joint and survivorship
annuities with specified periods certain (see "Option F" and "Option J" above)
cannot be any greater than the joint life expectancies of the payee and his or
her spouse.
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 year 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 the LED program, regardless of Contract Year, amounts up to the
required minimum distribution may be withdrawn without a deduction for sales
charges, even if the minimum distribution exceeds the 10% allowable amount (see
"Sales Charges"). Also, any amounts withdrawn that have not been held under a
Contract for at least six years and are in excess of the greater of the minimum
distribution and the 10% free available amount will be subject to any applicable
sales charge.
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 also is 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
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VALUATION DATE--A Valuation Date is every day the New York Stock Exchange is
open for trading and PHL Variable is open for business. 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 Subaccount. The value
of one Accumulation Unit on any subsequent Valuation Date is determined by
multiplying the immediately preceding Accumulation Unit Value by the applicable
Net Investment Factor for the Valuation Period ending on such Valuation Date.
NET INVESTMENT FACTOR--The Net Investment Factor for any Valuation Period is
equal to 1.000000 plus the applicable net investment rate for such Valuation
Period. A Net Investment Factor may be more or less than 1.000000. To determine
the net investment rate for any Valuation Period for the Funds allocated to each
Subaccount, the following steps are taken: (a) the aggregate accrued investment
income and capital gains and losses, whether realized or unrealized, of the
Subaccount for such Valuation Period is computed, (b) the amount in (a) is then
adjusted by the sum of the charges and credits for any applicable income taxes
and the deductions at the beginning of the Valuation Period for mortality and
expense risk charges and daily administration fee, and (c) the results of (a) as
adjusted by (b) are divided by the aggregate Unit Values in the Subaccount at
the beginning of the Valuation Period.
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MISCELLANEOUS PROVISIONS
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ASSIGNMENT
Owners of Contracts issued in connection with non-tax qualified plans may
assign their interest in the Contract without the consent of the beneficiary. A
written notice of such assignment must be filed with VPMO before it will be
honored.
A pledge or assignment of a Contract is treated as payment received on
account of a partial surrender of a Contract. (See "Surrenders or Withdrawals
Prior to the Contract Maturity Date.")
In order to qualify for favorable tax treatment, Contracts issued in
connection with tax qualified plans may not be sold, assigned, discounted or
pledged as collateral for a loan or as security for the performance of an
obligation, or for any other purpose, to any person other than 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 VPMO. 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
governmental body having jurisdiction by order permits such suspension. Rules
and regulations of the SEC, if any, are applicable and will govern as to
whether conditions described in (b), (c) or (d) exist.
FREE LOOK PERIOD
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 Subaccount during the free look period,
unless the Contract was issued with a Temporary Money Market Allocation
Amendment, in which case the initial purchase payment will be refunded.
If the Contract Owner elected on the application to have the Temporary Money
Market Allocation Amendment issued with the Contract, or resides in a state that
requires the Contract to be issued with the Temporary Money Market Allocation
Amendment, PHL Variable temporarily allocates the initial purchase payment to
the Money Market Subaccount. Under this Amendment, if the Contract Owner
surrenders the Contract during the Free Look Period, the initial purchase
payment is refunded. At the expiration of the Free Look Period, the value of the
Accumulation Units held in the Money Market Subaccount is allocated among the
available Subaccounts of the Account or the GIA in accordance with the
Contract Owner's allocation instructions on the application.
If the initial purchase payment, or any portion thereof, was allocated to
the GIA, that payment (or portion) and any earned interest is refunded.
AMENDMENTS TO CONTRACTS
Contracts may be amended to conform to changes in applicable law or
interpretations of applicable law, or to accommodate design changes. Changes in
the Contract may need to be approved by Contract Owners and 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
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INTRODUCTION
The Contracts are designed for use with retirement plans which may or may
not be tax-qualified plans ("Qualified Plans") under the provisions of the
Internal Revenue Code of 1986, as amended (the "Code"). The ultimate effect of
federal income taxes on the amounts held under a Contract, on annuity payments
and on the economic benefits of the Contract Owner, Annuitant or beneficiary
depends on PHL Variable'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'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"). PHL Variable does not guarantee the tax status of the
Contracts. Purchasers bear the complete risk that the Contracts may not be
treated as "annuity contracts" under federal income tax laws. For a discussion
of federal income taxes as they relate to the Funds, please see the accompanying
prospectuses for the Funds.
TAX STATUS
PHL Variable is taxed as a life insurance company under Part 1 of
Subchapter L of the Code. Since the Account is not a separate entity
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from PHL Variable and its operations form a part of PHL Variable, it will not be
taxed separately as a "regulated investment company" under Subchapter M of the
Code. Investment income and realized capital gains on the assets of the Account
are reinvested and taken into account in determining the Contract Value. Under
existing federal income tax law, the Account's investment income, including
realized net capital gains, is not taxed to 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, in
certain cases the increase in value may be subject to tax currently. In the case
of Contracts not owned by natural persons, see "Contracts Owned by Non-Natural
Persons." In the case of Contracts not meeting the diversification requirements,
see "Diversification Standards."
1. SURRENDERS OR WITHDRAWALS PRIOR TO THE CONTRACT
MATURITY DATE.
Code Section 72 provides that a total or partial surrender from a
Contract prior to the Contract Maturity Date will be treated as taxable
income to the extent the amounts held under the Contract exceed the
"investment in the Contract." The "investment in the Contract" is that
portion, if any, of purchase payments (premiums paid) by or on behalf of an
individual under a Contract that is not excluded from the individual's gross
income. However, under certain types of Qualified Plans there may be no
investment in the Contract within the meaning of Code Section 72, so that
the total amount of all payments received will be taxable. The taxable
portion is taxed as ordinary income in an amount equal to the value of the
Contract or portion thereof that is pledged or assigned. For purposes of
this rule, a pledge or assignment of a Contract is treated as a payment
received on account of a partial surrender of a Contract.
2. SURRENDERS OR WITHDRAWALS ON OR AFTER THE CONTRACT
MATURITY DATE.
Upon receipt of a lump sum payment under the Contract, the recipient is
taxed on the portion of the payment that exceeds the investment in the
Contract. Ordinarily, such taxable portion is taxed as ordinary income.
Under certain circumstances, the proceeds of a surrender of a Contract may
qualify for "lump sum distribution" treatment under Qualified Plans. See
your tax adviser if you think you may qualify for "lump sum distribution"
treatment. The five year averaging rule for lump sum distribution has been
repealed for tax years beginning after 1999.
For fixed annuity payments, the taxable portion of each payment is
determined by using a formula known as the "exclusion ratio," which
establishes the ratio that the investment in the Contract bears to the total
expected amount of annuity payments for the term of the Contract. That ratio
is then applied to each payment to determine the non-taxable portion of the
payment. The remaining portion of each payment is taxed as ordinary income.
For variable annuity payments, the taxable portion is determined by a
formula that establishes a specific dollar amount of each payment that is
not taxed. The dollar amount is determined by dividing the investment in the
Contract by the total number of expected periodic payments. The remaining
portion of each payment is taxed as ordinary income. Once the excludable
portion of annuity payments equals the investment in the Contract, the
balance of the annuity payments will be fully taxable. For certain types of
qualified plans, there may be no investment in the Contract resulting in the
full amount of the payments be taxable. A simplified method of determining
the exclusion ratio is effective with respect to qualified plan annuities
starting after November 18, 1996.
Withholding of federal income taxes on all distributions may be required
unless the recipient elects not to have any amounts withheld and properly
notifies 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(t) relating to distributions from qualified
retirement plans and to a special penalty of 25% applicable specifically
to SIMPLE IRAs); (v) allocable to investment in the contract before August
14, 1982; (vi) under a qualified funding asset (as defined in Code Section
130(d)); (vii) under an immediate annuity contract (as defined in Code
Section 72(u)(4)); or (viii) that are purchased by an employer on
termination of certain types of qualified plans and which are held by the
employer until the employee separates from service.
If the penalty tax does not apply to a withdrawal as a result of the
application of item (iii) above, and the series of payments are subsequently
modified (other than by reason of death or disability), the tax for the
first year when the modification occurs will be increased by an amount
(determined by the Treasury regulations) equal to the tax that would have
been imposed but for item (iii) above, plus interest for the deferral
period, but only if the modification takes place: (a) before the close of
the period which is 5 years from the date of the first payment and after the
taxpayer attains age 59 1/2, or (b) before the taxpayer reaches age 59 1/2.
Separate tax withdrawal penalties apply to Qualified Contracts.
(See "Penalty Fax on Surrenders and Withdrawals from Qualified
Contracts.")
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ADDITIONAL CONSIDERATIONS
1. DISTRIBUTION-AT-DEATH RULES.
In order to be treated as an annuity contract for federal income tax
purposes, a Contract must provide the following two distribution rules: (a)
if the Contract Owner dies on or after the Contract Maturity Date, and
before the entire interest in the Contract has been distributed, the
remainder of the Contract Owner's interest will be distributed at least as
quickly as the method in effect on the Contract Owner's death; and (b) if a
Contract Owner dies before the Contract Maturity Date, the Contract Owner's
entire interest generally must be distributed within five (5) years after
the date of death, or if payable to a designated beneficiary may be
annuitized over the life of that beneficiary or over a period not extending
beyond the life expectancy of that beneficiary, and must commence within one
(1) year after the Contract Owner's date of death. If the beneficiary is the
spouse of the Contract Owner, the Contract (together with the deferral of
tax on the accrued and future income thereunder) may be continued in the
name of the spouse as Contract Owner. Similar distribution requirements
apply to annuity contracts under Qualified Plans (other than Code Section
457 Plans). However, a number of restrictions, limitations and special rules
apply to qualified plans and Contract Owners should consult with their tax
adviser.
If the Annuitant, who is not the Contract Owner, dies before the
Maturity Date and there is no Contingent Annuitant, the Annuitant's
beneficiary must elect within 60 days whether to receive the death benefit
in a lump sum or in periodic payments commencing within one (1) year.
If the Contract Owner is not an individual, the death of the primary
Annuitant, is treated as the death of the Contract Owner. In addition,
when the Contract Owner is not an individual, a change in the primary
Annuitant is treated as the death of the Contract Owner. Finally, in the
case of non-spousal joint Contract Owners the distribution will be required
at the death of the first of the Contract Owners.
If the Contract Owner or a Joint Contract Owner dies on or after the
Maturity Date, the remaining payments, if any, under the Annuity Option
selected will be made at least as rapidly as under the method of
distribution in effect at the time of death.
2. TRANSFER OF ANNUITY CONTRACTS.
Transfers of non-qualified Contracts prior to the Maturity Date for less
than full and adequate consideration to the Contract Owner at the time of
such transfer, will trigger tax on the gain in the Contract, with the
transferee getting a step-up in basis for the amount included in the
Contract Owner's income. This provision does not apply to transfers between
spouses or incident to a divorce.
3. CONTRACTS OWNED BY NON-NATURAL PERSONS.
If the Contract is held by a non-natural person (for example, a
corporation) the income on that Contract (generally the increase in the net
surrender value less the premium paid) is includable in income each year.
The rule does not apply where the non-natural person is the nominal owner of
a Contract and the beneficial owner is a natural person. The rule also does
not apply where the annuity contract is acquired by the estate of a
decedent, where the Contract is held under a qualified plan, a 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 generally
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
Funds will be required to diversify its investments. The Diversification
Regulations generally require that, on the last day of each quarter of a
calendar year no more than 55% of the value of the assets of the Funds are
represented by any one investment, no more than 70% is represented by any two
investments, no more than 80% is represented by any three investments and no
more than 90% is represented by any four investments. A "look-through" rule
applies to treat a pro rata portion of each asset of the Funds as an asset of
the Account, and each Series of the Funds are tested for compliance with the
percentage limitations. All securities of the same issuer are treated as a
single investment. As a result of the 1988 Act, each
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Government agency or instrumentality will be treated as a separate issuer for
purposes of these limitations.
The Treasury Department has indicated that the diversification
Regulations do not provide guidance regarding the circumstances in which
Contract Owner control of the investments of the Account will cause the
Contract Owner to be treated as the owner of the assets of the Account,
thereby resulting in the loss of favorable tax treatment for the Contract.
At this time it cannot be determined whether additional guidance will be
provided and what standards may be contained in such guidance. The amount of
Contract Owner control which may be exercised under the Contract is
different in some respects from the situations addressed in published
rulings issued by the Internal Revenue Service in which was held that the
policy owner was not the owner of the assets of the separate account. It is
unknown whether these differences, such as the Contract Owner's ability to
transfer among investment choices or the number and type of investment
choices available, would cause the Contract Owner to be considered as the
owner of the assets of the Account resulting in the imposition of federal
income tax to the Contract Owner with respect to earnings allocable to the
Contract prior to receipt of payments under the Contract.
In the event any forthcoming guidance or ruling is considered to set
forth a new position, such guidance or ruling will generally be applied only
prospectively. However, if such ruling or guidance was not considered to set
forth a new position, it may be applied retroactively resulting in the
Contract Owner being retroactively determined to be the owner of the assets
of the Account.
Due to the uncertainty in this area, PHL Variable reserves the right to
modify the Contract in an attempt to maintain favorable tax treatment.
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 Funds)
will be structured to comply with the diversification standards because the
Funds serve as the investment vehicle for non-qualified Contracts as well as
Qualified Plan Contracts.
QUALIFIED PLANS
The Contracts may be used with several types of Qualified Plans. TSAs,
Keoghs, IRAs, Corporate Pension and Profit-Sharing Plans and State Deferred
Compensation Plans will be treated, for purposes of this discussion, as
Qualified Plans. The tax rules applicable to participants in such Qualified
Plans vary according to the type of plan and the terms and conditions of the
plan itself. No attempt is made herein to provide more than general information
about the use of the Contracts with the various types of Qualified Plans.
Participants under such Qualified Plans as well as Contract Owners, Annuitants,
and beneficiaries, are cautioned that the rights of any person to any benefits
under such Qualified Plans may be subject to the terms and conditions of the
plans themselves or limited by applicable law, regardless of the terms and
conditions of the Contract issued in connection therewith. For example, 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 roll-over 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 (not including IRAs), except (a) distributions required
under the Code, (b) substantially equal distributions made over the life (or
life expectancy) of the employee, or for a term certain of 10 years or more and
(c) the portion of distributions not includable in gross income (i.e., return of
after tax contributions).
On July 6, 1983, the Supreme Court dediced in ARIZONA GOVERNING COMMITTEE V.
NORRIS that optional annuity benefits provided under an employer's deferred
compensation plan could not, under Title VII of the Civil Rights Act of 1964,
vary between men and women. The Contracts sold by PHL Variable in connection
with certain Qualified Plans will utilize annuity tables which do not
differentiate on the basis of sex. Such annuity tables also will be available
for use in connection with certain non-qualified deferred compensation plans.
Numerous changes have been made to the income tax rules governing Qualified
Plans as a result of legislation enacted during the past several years,
including rules with respect to: coverage, participation, 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,
22
<PAGE>
Code Section 403(b) Contracts, if the cash withdrawn is attributable to
purchase payments made under a salary reduction agreement. Specifically,
Code Section 403(b)(11) allows a Contract Owner to make a surrender or
partial withdrawal only (a) when the employee attains age 59 1/2, separates
from service, dies or becomes disabled (as defined in the Code), or (b) in
the case of hardship. In the case of hardship, the amount distributable
cannot include any income earned under the Contract.
The 1988 Act amended the effective date of Code Section 403(b)(11), so
that it applies only with respect to distributions from Code Section 403(b)
Contracts which are attributable to assets other than assets held as of the
close of the last year beginning before January 1, 1989. Thus, the
distribution restrictions do not apply to assets held as of December 31,
1988.
In addition, in order for certain types of contributions under a Code
Section 403(b) Contract to be excluded from taxable income, the employer
must comply with certain nondiscrimination requirements. Contract Owners
should consult their employers to determine whether the employer has
complied with these rules. Contract Owner loans are not allowed under the
Contracts.
2. KEOGH PLANS.
The Self-Employed Individual Tax Retirement Act of 1962, as amended,
permits self-employed individuals to establish "Keoghs" or qualified plans
for themselves and their employees. The tax consequences to participants
under such a plan depend upon the terms of the plan. In addition, such plans
are limited by law with respect to the maximum permissible contributions,
distribution dates, nonforfeitability of interests, and tax rates applicable
to distributions. In order to establish such a plan, a plan document must be
adopted and implemented by the employer, as well as approved by the 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. Effective January 1, 1997, employers may
establish a new type of IRA called SIMPLE (Savings Incentive Match Plan for
Employees). Special rules apply to participants' contributions to and
withdrawals from SIMPLE IRAs. Also effective January 1, 1997, salary
reduction IRAs (SARSEP) may no longer be established.
4. CORPORATE PENSION AND PROFIT-SHARING PLANS.
Code Section 401(a) permits corporate employers to establish
various types of retirement plans for employees. Such retirement plans may
permit the purchase of Contracts to provide benefits thereunder.
These retirement plans may permit the purchase of the Contracts to
provide benefits under the Plan. Contributions to the Plan for the benefit
of employees will not be includible in the gross income of the employee
until distributed from the Plan. The tax consequences to participants may
vary, depending upon the particular Plan design. However, the Code places
limitations and restrictions on all Plans, including on such items as:
amount of allowable contributions; form, manner and timing of distributions;
transferability of benefits; vesting and nonforfeitability of interests;
nondiscrimination in eligibility and participation; and the tax treatment of
distributions, withdrawals and surrenders. Participant loans are not allowed
under the Contracts purchased in connection with these Plans. Purchasers of
Contracts for use with Corporate Pension or Profit-Sharing Plans should
obtain competent tax advice as to the tax treatment and suitability of such
an investment.
5. DEFERRED COMPENSATION PLANS WITH RESPECT TO SERVICE
FOR STATE AND LOCAL GOVERNMENTS AND TAX EXEMPT
ORGANIZATIONS.
Code Section 457 provides for certain deferred compensation plans with
respect to service for state and local governments and certain other
entities. The Contracts may be used in connection with these plans; however,
under these plans if issued to tax exempt organizations, the Contract Owner
is the plan sponsor, and the individual participants in the plans are the
Annuitants. Under such Contracts, the rights of individual plan participants
are governed solely by their agreements with the plan sponsor and not by the
terms of the Contracts. Effective in 1997 for new state and local government
plans, such plans must be funded through a tax exempt annuity contract held
for the exclusive benefit of plan participants.
PENALTY TAX ON CERTAIN SURRENDERS AND WITHDRAWALS FROM
QUALIFIED CONTRACTS
In the case of a withdrawal under a Qualified Contract, a ratable
portion of the amount received is taxable, generally based on the ratio of
the individual's cost basis to the individual's total accrued benefit under
the retirement plan. Special tax rules may be available for certain
distributions from a Qualified Contract. Section 72(t) of the Code imposes a
10% penalty tax on the taxable portion of any distribution from qualified
retirement plans, including Contracts issued and qualified under Code
Sections 401 (Keogh and Corporate Pension and Profit-Sharing Plans), Tax-
Sheltered Annuities and Individual Retirement Annuities. The penalty is
increased to 25% instead of 10% for SIMPLE IRAs if distribution occurs
within the first two years of the Contract Owner's participation in the
SIMPLE IRA. To the extent amounts are not includible in gross income because
they have been properly rolled over to an IRA or to another eligible
Qualified Plan, no tax penalty will be imposed. The tax penalty will not
apply to the following distributions: (a) if distribution is made on or
after the date on which the Contract Owner or Annuitant (as applicable)
reaches age 59 1/2; (b) distributions following the death or disability of
the Contract Owner or Annuitant (as applicable) (for this purpose disability
is as defined in Section 72(m)(7) of the Code); (c) after separation from
service, distributions that are part of substantially equal periodic
payments made not less frequently than annually for the life (or life
expectancy) of the Contract Owner or Annuitant (as applicable) or the joint
lives (or joint life expectancies) of such Contract Owner or Annuitant (as
applicable) and his or her designated beneficiary; (d) distributions to a
Contract Owner or Annuitant (as applicable) who has separated from service
after he has attained age 55; (e) distributions made to the Contract Owner
or Annuitant (as applicable) to the extent
23
<PAGE>
such distributions do not exceed the amount allowable as a deduction under
Code Section 213 to the Contract Owner or Annuitant (as applicable) for
amounts paid during the taxable year for medical care; (f) distributions
made to an alternate payee pursuant to a qualified domestic relations order;
and (g) distributions from an Individual Retirement Annuity for the purchase
of medical insurance (as described in Section 213(d)(1)(D) of the Code) for
the Contract Owner and his or her spouse and dependents if the Contract
Owner has received unemployment compensation for at least 12 weeks. This
exception will no longer apply after the Contract Owner has been reemployed
for at least 60 days. The exceptions stated in items (d) and (f) above do
not apply in the case of an Individual Retirement Annuity. The exception
stated in item (c) applies to an Individual Retirement Annuity without the
requirement that there be a separation from service.
Generally, distributions from a Qualified Plan must commence no later
than April 1 of the calendar year following the later of: (a) the year in
which the employee attains age 70 1/2 or (b) the calendar year in which the
employee retires. The date set forth in (b) does not apply to an Individual
Retirement Annuity. Required distributions must be over a period not
exceeding the life expectancy of the individual or the joint lives or life
expectancies of the individual and his or her designated beneficiary. If the
required minimum distributions are not made, a 50% penalty tax is imposed as
to the amount not distributed.
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. 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 is an indirect wholly-owned
subsidiary of Phoenix Home Life Mutual Insurance Company. PEPCO is an indirect,
majority owned subsidiary of Phoenix Home Life Mutual Insurance Company.
Contracts also may 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.
PHL Variable through 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 Funds 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 also is subject to the
applicable insurance laws of all the other states and jurisdictions in which it
does an insurance business.
State regulation of 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 Subaccount will be
invested in shares of a corresponding Series of the Funds. 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 Funds, 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 Funds at regular and special meetings of the shareholders of the
Funds in accordance with instructions received from Owners of the Contracts.
PHL Variable currently intends to vote Fund shares attributable to any PHL
Variable assets and Fund shares held in each Subaccount for which no timely
instructions from Owners are received in the same proportion as those shares in
that Subaccount for which instructions are received. In the future, to the
extent applicable federal securities
24
<PAGE>
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 a Fund; (2) ratification of
the independent accountant for a Fund; (3) approval or amendment of the
investment advisory agreement for the Series of the Fund corresponding to the
Owner's selected Subaccount(s); (4) any change in the fundamental investment
policies or restrictions of each such Series; and (5) any other matter requiring
a vote of the Shareholders of a Fund. With respect to amendment of any
investment advisory agreement or any change in a Series' fundamental investment
policy, Owners participating in such Series will vote separately on the matter,
pursuant to the requirements of the 1940 Act.
The number of votes that a Contract Owner has the right to cast will be
determined by applying the Contract Owner's percentage interest in a
Subaccount to the total number of votes attributable to the Subaccount. In
determining the number of votes, fractional shares will be recognized. The
number of votes for which each Owner may give PHL Variable instructions will be
determined as of the record date for Fund shareholders chosen by the Board of
Trustees of a Fund. PHL Variable will furnish Owners with proper forms and
proxies to enable them to give these instructions.
TEXAS OPTIONAL RETIREMENT PROGRAM
- --------------------------------------------------------------------------------
Participants in the Texas Optional Retirement Program may not receive the
proceeds of a withdrawal from, or complete surrender of, a Contract, or apply
them to provide annuity options prior to retirement except in the case of
termination of employment in the Texas public institutions of higher education,
death or total disability. Such proceeds, however, may be used to fund another
eligible retirement vehicle.
LITIGATION
- --------------------------------------------------------------------------------
PHL Variable, 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
- --------------------------------------------------------------------------------
Blazzard, Grodd & Hasenauer, P.C. of Westport, Connecticut has provided
advice on certain matters relating to the Federal securities and income tax laws
in connection to the Contracts described in this Prospectus.
STATEMENT OF ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
The Statement of Additional Information contains more specific information
and financial statements relating to the Account and PHL Variable. 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 Phoenix Variable Products Mail Operations in
writing at P.O. Box 8027, Boston, Massachusetts 02266-8027, or by calling
VPO at (800) 447-4312.
25
<PAGE>
APPENDIX A
THE GUARANTEED INTEREST ACCOUNT
Contributions to the GIA under the Contract and transfers to the GIA
become part of the general account of 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 GIA. Disclosures regarding the GIA and the General Account,
however, may be subject to certain generally applicable provisions of the
federal securities laws relating to the accuracy and completeness of statements
made in prospectuses.
The General Account is made up of all of the general assets of PHL Variable
Insurance Company other than those allocated to any separate account. Purchase
payments will be allocated to the GIA and, therefore, the General Account, as
elected by the Owner at the time of purchase or as subsequently changed. 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 GIA. 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 GIA. That rate will remain in effect for
such deposits for an initial guarantee period of one full year from the date of
deposit. Upon expiration of the initial one-year guarantee period (and each
subsequent one-year guarantee period thereafter), the rate to be applied to any
deposits whose guaranteed period has just ended will be the same rate as is
applied to new deposits allocated to the GIA at that time. This rate will
likewise remain in effect for a guarantee period of one full year from the date
the new rate is applied.
Excess interest, if any, will be determined by 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 GIA and the amount thereof, are general economic
trends, rates of return currently available and anticipated on investments,
regulatory and tax requirements and competitive factors. ANY INTEREST CREDITED
TO AMOUNTS ALLOCATED TO THE GIA IN EXCESS OF 4% PER YEAR WILL BE DETERMINED IN
THE SOLE DISCRETION OF PHL VARIABLE AND WITHOUT REGARD TO ANY SPECIFIC FORMULA.
THE CONTRACT OWNER ASSUMES THE RISK THAT INTEREST CREDITED TO GIA ALLOCATIONS
MAY NOT EXCEED THE MINIMUM GUARANTEE FOR ANY GIVEN YEAR.
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 GIA Contract Value. PHL
Variable guarantees that, at any time, the GIA Contract Value will not be less
than the amount of purchase payments allocated to the GIA, plus interest at
the rate of 4% per year, compounded annually, plus any additional interest which
PHL Variable may, in its discretion, credit to the GIA, less the sum of all
annual administrative or surrender charges, any applicable premium taxes, and
less any amounts surrendered. If the Owner surrenders the Contract, the amount
available from the GIA will be reduced by any applicable surrender charge and
annual administration charge (see "Deductions and Charges").
IN GENERAL, ONE TRANSFER PER CONTRACT YEAR IS ALLOWED FROM THE GIA. THE
AMOUNT WHICH CAN BE TRANSFERRED IS LIMITED TO THE GREATER OF $1,000 OR 25% OF
THE CONTRACT VALUE IN THE GIA AT THE TIME OF THE TRANSFER. UNDER THE
SYSTEMATIC TRANSFER PROGRAM, TRANSFERS OF APPROXIMATELY EQUAL AMOUNTS MAY BE
MADE OVER A MINIMUM 18-MONTH PERIOD. NON-SYSTEMATIC TRANSFERS FROM THE GIA
WILL BE EFFECTUATED ON THE DATE OF RECEIPT BY VPMO, UNLESS OTHERWISE REQUESTED
BY THE CONTRACT OWNER.
26
<PAGE>
APPENDIX B
DEDUCTIONS FOR STATE PREMIUM TAXES
QUALIFIED AND NON-QUALIFIED ANNUITY CONTRACTS
<TABLE>
<CAPTION>
UPON UPON
STATE PURCHASE(1) ANNUITIZATION NON-QUALIFIED QUALIFIED
- ----- ----------- ------------- ------------- ---------
<S> <C> <C> <C> <C>
California .......................................... X 2.35% 0.50%
D.C.................................................. X 2.25 2.25
Kansas............................................... X 2.00
Kentucky............................................. X 2.00 2.00
Maine................................................ X 2.00
Nevada............................................... X 3.50
South Dakota......................................... X 1.25
West Virginia........................................ X 1.00 1.00
Wyoming.............................................. X 1.00
</TABLE>
NOTE: The above premium tax deduction rates are as of May 1, 1997. No premium
tax deductions are made for states not listed above. For Kentucky
contracts, premium taxes will be deducted upon purchases effective for
annuity considerations received on or after July 1, 1997. 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.
27
<PAGE>
PART B
INFORMATION REQUIRED IN A
STATEMENT OF ADDITIONAL INFORMATION
<PAGE>
PHL VARIABLE ACCUMULATION ACCOUNT
HOME OFFICE: PHOENIX VARIABLE PRODUCTS
One American Row MAIL OPERATIONS (VPMO):
Hartford, Connecticut P.O. Box 8027
Boston, Massachusetts 02266-8027
VARIABLE ACCUMULATION DEFERRED ANNUITY CONTRACT
STATEMENT OF ADDITIONAL INFORMATION
May 1, 1997
This Statement of Additional Information is not a prospectus and should be
read in conjunction with the Prospectus, dated May 1, 1997, which is available
without charge by contacting PHL Variable Insurance Company at the above address
or at the above telephone number.
-----------------
TABLE OF CONTENTS
PAGE
Underwriter............................................................... B-2
Calculation of Yield and Return........................................... B-2
Calculation of Annuity Payments .......................................... B-3
Experts .................................................................. B-4
Financial Statements...................................................... B-5
B-1
<PAGE>
UNDERWRITER
- --------------------------------------------------------------------------------
The offering of Contracts is made on a continuous basis by Phoenix Equity
Planning Corporation ("PEPCO"), an affiliate of PHL Variable. For sales of
Contracts, during the fiscal year ended December 31, 1996, PEPCO was paid
$7,750,042 and retained $0.
CALCULATION OF YIELD AND RETURN
- --------------------------------------------------------------------------------
Yield of the Money Market Subaccount. As summarized in the Prospectus
under the heading "Performance History," the yield of the Money Market
Subaccount for a seven-day period (the "base period") will be computed by
determining the "net change in value" (calculated as set forth below) of a
hypothetical account having a balance of one share at the beginning of the
period, dividing the net change in account value by the value of the account at
the beginning of the base period to obtain the base period return and
multiplying the base period return by 365/7 with the resulting yield figure
carried to the nearest hundredth of one percent. Net changes in value of a
hypothetical account will include net investment income of the account (accrued
daily dividends as declared by the underlying funds, less daily expense charges
of the account) for the period, but will not include realized gains or losses or
unrealized appreciation or depreciation on the underlying fund shares. A
mortality and expense risk charge of 1.25% (approximately 0.40% for mortality
and 0.85% for expense) and a daily administrative fee of 0.125% are reflected.
The Money Market Subaccount yield and effective yield will vary in
response to fluctuations in interest rates and in the expenses of the
Subaccount.
The current yield and effective yield reflect recurring charges at the
Account level, including the maximum annual administrative fee.
Example:
Value of hypothetical pre-existing account with exactly one
unit at the beginning of the period:............... 1.050796
Value of the same account (excluding capital changes) at the
end of the seven-day period:....................... 1.051525
Calculation:
Ending account value............................ 1.051525
Less beginning account value.................... 1.050796
Net change in account value..................... 0.000796
Base period return:
(adjusted change/beginning account value)....... 0.000694
Current yield = return x (365/7) =................. 3.62%
Effective yield = [(1 + return)365/7] -1 =......... 3.68%
At any time in the future, yields and total return may be higher or lower
than past yields and there can be no assurance that any historical results will
continue.
Calculation of Total Return. As summarized in the Prospectus under the
heading, "Performance History," total return is a measure of the change in value
of an investment in a Subaccount over the period covered and is computed by
finding the average annual compounded rates of return over the 1-, 5- and
10-year periods that would equate the initial amount invested to the ending
redeemable value according to a formula. The formula for total return used
herein includes four steps: (1) assuming a hypothetical $1,000 initial
investment in the Subaccount; (2) calculating the value of the hypothetical
initial investment of $1,000 as of the end of the period by multiplying the
total number of units owned at the end of the period by the unit value per unit
on the last trading day of the period; (3) assuming redemption at the end of the
period and deducting any recurring fees and any applicable contingent deferred
sales charge; and (4) dividing this account value for the hypothetical investor
by the initial $1,000 investment. Total return will be calculated for one year,
five years and ten years or some other relevant periods if a Subaccount has
not been in existence for at least ten years.
PERFORMANCE INFORMATION
Advertisements, sale literature and other communications may contain
information about any Series or Adviser's current investment strategies and
management style. Current strategies and style may change to allow any Series to
respond quickly to changing market and economic conditions. From time to time,
the Funds may include specific portfolio holdings or industries in such
communications. To illustrate components of overall performance, the Funds may
separate its cumulative and average annual returns into income and capital gains
components; or cite separately as a return figure the equity or bond portion of
a portfolio; or compare a Series' equity or bond return figure to well-known
indices of market performance, including, but not limited to: the S&P 500 Index,
Dow Jones Industrial Average, First Boston High Yield Index and Salomon Brothers
Corporate and Government Bond Indices.
Each Subaccount may, from time to time, include its yield and total return
in advertisements or information furnished to present or prospective Contract
Owners. Each Subaccount may, from time to time, include in advertisements
containing total return (and yield in the case of certain Subaccounts) the
ranking of those performance figures relative to such figures for groups of
mutual funds categorized as having the same investment objectives as Lipper
Analytical Services, CDA Investment Technologies, Inc., Weisenberger Financial
Services, Inc., Morningstar, Inc. and Tillinghast. Additionally, the Fund may
compare a Series' performance results to other investment or savings vehicles
(such as certificates of deposit) and may refer to results published in various
publications such as Changing Times, Forbes, Fortune, Money, Barrons, Business
Week, Investor's Daily, The Stanger Register, Stanger's Investment Adviser, The
Wall Street Journal, The New York Times, Consumer Reports, Registered
Representative, Financial Planning, Financial Services Weekly, Financial World,
U.S. News and World Report, Standard & Poor's The Outlook and Personal
Investor. The Fund may from time to time illustrate the benefits of tax deferral
by comparing taxable investments to investments made through tax-deferred
retirement plans.
The total return and yield may also be used to compare the performance of
the Subaccounts against certain widely acknowledged outside standards or
indices for stock and bond market performance. The Standard & Poor's Composite
Index of 500 Stocks (the "S&P 500") is a market value-weighted and unmanaged
index showing the changes in the aggregate market value of 500 stocks relative
to the base period 1941-43. The S&P 500 is composed almost entirely of common
stocks of companies listed on the New York Stock Exchange, although the common
stocks of a few companies listed on the American Stock Exchange or traded
over-the-counter are included. The 500 companies represented include 400
industrial, 60 transportation and 40 financial services concerns. The S&P 500
B-2
<PAGE>
represents about 80% of the market value of all issues traded on the New York
Stock Exchange.
The manner in which total return and yield will be calculated is described
above.
The following table summarizes the calculation of total return and yield for
each Subaccount, from inception through December 31, 1996.
AVERAGE ANNUAL TOTAL RETURN FOR THE PERIOD ENDED 12/31/96
---------------------------------------------------------
COMMENCEMENT
DATE OF CORRE- LIFE OF
SUBACCOUNT SPONDING FUND 1 YEAR 5 YEARS 10 YEARS FUND
- ---------- ------------- ------ ------- -------- ----
Multi-Sector..... 1/1/83 4.73% 8.81% 8.17% 9.39%
Balanced......... 5/1/92 3.00% N/A N/A 7.93%
Allocation....... 9/17/84 1.59% 7.29% 9.79% 10.96%
Growth........... 1/1/83 4.89% 12.45% 14.38% 16.66%
International.... 5/1/90 10.56% 7.40% N/A 6.74%
Money Market..... 10/10/82 (2.16)% 2.23% 4.23% 4.93%
Real Estate...... 5/1/95 24.01% N/A N/A 24.72%
U.S. Small Cap... 5/1/95 36.64% N/A N/A 30.96%
Int'l. Small Cap. 5/1/95 23.03% N/A N/A 34.42%
Theme............ 1/29/96 N/A N/A N/A 2.12%
Asia............. 9/20/96 N/A N/A N/A (6.52)%
TPT Allocation... 5/1/97 N/A N/A N/A N/A
TPT Stock........ 5/1/97 N/A N/A N/A N/A
TPT Int'l........ 5/1/97 N/A N/A N/A N/A
TPT Dev. Mkts.... 5/1/97 N/A N/A N/A N/A
CALCULATION OF ANNUITY PAYMENTS
- --------------------------------------------------------------------------------
VARIABLE ANNUITY PAYMENTS
Unless an alternative annuity payment option is elected on or before the
Contract Maturity Date, the Contract Value on the Maturity Date will
automatically be applied to provide a Variable Payment Life Annuity with 10 Year
Period Certain based on the Annuitant's life under annuity payment Option I as
described in the Prospectus. Any annuity payments falling due after the
Annuitant's death during the period certain will be paid to the Beneficiary.
If the amount to be applied on the Maturity Date is less than $2,000 or
would result in monthly payments of less than $20, PHL Variable Insurance
Company shall have the right to pay such amount in one lump sum in lieu of
providing the annuity payments. PHL Variable Insurance Company will also have
the right to change the annuity payment frequency to annually if the monthly
annuity payment would otherwise be less than $20.
Under the Variable Payment Life Annuity with 10 Year Period Certain (payment
Option I), the first monthly income payment is due on the Maturity Date.
Thereafter, payments are due on the same day of the month as the first payment
was due, or if such date does not fall within a particular month, then the
future payment is due on the first Valuation Date to occur in the following
month. Payments will continue during the lifetime of the Annuitant, or, if
later, until the end of the Ten Year Period Certain starting with the date the
first payment is due.
The Variable Income Table below shows the minimum amount of the first
monthly payment for each $1,000 of Accumulation Value applied. The minimum first
payments shown are based on the 1983 table, an annuity table projected to the
year 2040 with Projection Scale G, and with Projection Scale G thereafter, and
an effective assumed investment return of 4 1/2%. The actual payments will be
based on the monthly payment rate PHL Variable Insurance Company is using when
the first payment is due. They will not be less than those shown in the Variable
Income Table.
VARIABLE INCOME TABLE
---------------------
Minimum monthly payment rate for first payment for each $1,000 applied.
Based on 4 1/2% assumed investment return.
ADJUSTED AGE* MALE FEMALE
------------- ---- ------
40 $4.15 $4.02
45 4.29 4.12
50 4.40 4.27
55 4.73 4.46
60 5.06 4.71
65 5.51 5.05
70 6.08 5.52
75 6.79 6.17
80 7.65 6.99
85 8.57 7.98
* Age on birthday nearest due date of the first payment. Monthly
payment rates for ages not shown will be furnished on request.
In determining the amount of the first payment, the amounts held under the
Variable Payment Option in each Subaccount are multiplied by the rates PHL
Variable Insurance Company is using for the Option on the first Payment
Calculation Date. The Payment Calculation Date is the earliest Valuation Date
that is not more than 10 days before the due date of the payment. The first
payment equals the total of such figures determined for each Subaccount.
Future payments are measured in Annuity Units and are determined by
multiplying the Annuity Units in each Subaccount with assets under the
Variable Payment Option by the Annuity Unit Value for each Subaccount on the
Payment Calculation Date that applies. The number of Annuity Units in each
Subaccount with assets under a Variable Payment Option is equal to the portion
of the first payment provided from that Subaccount divided by the Annuity Unit
Value for that Subaccount on the first Payment Calculation Date. The payment
will equal the sum of such amounts from each Subaccount.
All Annuity Unit Values in each Subaccount were set at $1.000000 on the
first Valuation Date selected by PHL Variable Insurance Company. The value of an
Annuity Unit on any date thereafter is equal to (a) the Net Investment Factor
for that Subaccount for the Valuation Period divided by (b) the sum of
1.000000 and the rate of interest for the number of days in the Valuation
Period, based on an effective annual rate of interest equal to the assumed
investment return, and multiplied by (c) the corresponding Annuity Unit Value on
the preceding Valuation Date. The assumed investment return of 4 1/2% per year
is the annual interest rate assumed in determining the first payment. The amount
of each subsequent payment from each Subaccount will depend on the
relationship between the assumed investment return and the actual investment
performance of the Subaccount. If a 4 1/2% rate would result in a first
variable payment larger than that permitted under applicable state law, we will
select a lower rate that will comply with such law.
No partial or full surrenders, withdrawals, transfers or additional premium
payments may be made with respect to any assets held under Variable Payment
Options I and J. Although no transfers or
B-3
<PAGE>
additional premium payments may be made with respect to assets held under
Option K, under this option partial or full surrenders may be made.
FIXED ANNUITY PAYMENTS
Fixed monthly annuity payments under a Contract are determined by applying
the Contract Value to the respective annuity purchase rates on the Maturity Date
of a Contract or other date elected for commencement of fixed annuity payments.
Under a Contract, the amount of the fixed annuity payment is calculated by
first multiplying the number of the Subaccounts' Accumulation Units credited
to the Contract on the Maturity Date by the appropriate Unit Value for each
Subaccount on the Maturity Date. The dollar value for all Subaccounts'
Accumulation Units is then aggregated, along with the dollar value of any
investment in the Guaranteed Interest Account. For each Contract the resulting
dollar value is then multiplied by the applicable annuity purchase rate, which
reflects the age (and sex for non-tax qualified plans) of the Annuitant
specified in the Contract for the Fixed Payment Annuity Option selected. This
computation determines the amount of PHL Variable Insurance Company's fixed
monthly annuity payment to the Annuitant.
The mortality table used as a basis for the applicable annuity purchase
rates is the a-49 Individual Annuity Mortality Table projected to 1985 at
Projection Scale B. An interest rate of 3 3/8% for 5- and 10- year certain
periods under Option A, for the 10-year period under Option F and for Option E;
an interest rate of 3 1/4% for the 20-year certain period under Options A and F;
an interest rate of 3 1/2% under Option B and D. Under Options G and H the
guaranteed interest rate is 3%. More favorable rates may be available on the
Maturity Date or other dates elected for commencement of fixed annuity payments.
EXPERTS
- --------------------------------------------------------------------------------
The financial statements of PHL Variable Insurance Company and the Account
have been examined by Price Waterhouse LLP, independent public accountants,
whose reports are set forth herein, and the financial statements have been
included upon the authority of said firm as experts in accounting and auditing.
Price Waterhouse LLP, whose address is One Financial Plaza, Hartford,
Connecticut, also provides other accounting and tax-related services as
requested by PHL Variable from time to time.
Blazzard, Grodd & Hasenauer, P.C. of Westport, Connecticut has provided
advice on certain matters relating to the Federal securities and income tax laws
in connection to the Contracts described in this Prospectus.
B-4
<PAGE>
PHL VARIABLE ACCUMULATION ACCOUNT
FINANCIAL STATEMENTS
JANUARY 1, 1996 TO DECEMBER 31, 1996
B-5
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1996
<TABLE>
<CAPTION>
Multi-Sector
Money Market Growth Fixed Income
Sub-Account Sub-Account Sub-Account
--------------- -------------- ---------------
<S> <C> <C> <C>
Assets
Investments at cost $23,307,062 $51,360,038 $15,609,618
============= ============ ==============
Investment in The Phoenix Edge Series Fund, at market $23,307,062 $51,007,296 $15,472,411
------------- ------------ --------------
Total assets 23,307,062 51,007,296 15,472,411
Liabilities
Accrued expenses to related party 23,864 57,618 16,234
------------- ------------ --------------
Net assets $23,283,198 $50,949,678 $15,456,177
============= ============ ==============
Accumulation units outstanding 22,142,319 42,365,475 13,251,869
============= ============ ==============
Unit value $ 1.051525 $ 1.202623 $ 1.166339
============= ============ ==============
</TABLE>
<TABLE>
<CAPTION>
Total Return International Balanced
Sub-Account Sub-Account Sub-Account
--------------- ---------------- --------------
<S> <C> <C> <C>
Assets
Investments at cost $15,272,702 $3,536,508 $6,559,097
============= ============== ============
Investment in The Phoenix Edge Series Fund, at market $14,867,073 $3,661,253 $6,423,484
------------- -------------- ------------
Total assets 14,867,073 3,661,253 6,423,484
Liabilities
Accrued expenses to related party 16,880 3,987 7,237
------------- -------------- ------------
Net assets $14,850,193 $3,657,266 $6,416,247
============= ============== ============
Accumulation units outstanding 13,248,885 3,094,533 5,615,835
============= ============== ============
Unit value $ 1.120864 $ 1.181847 $ 1.142528
============= ============== ============
</TABLE>
<TABLE>
<CAPTION>
Strategic Aberdeen
Real Estate Theme New Asia
Sub-Account Sub-Account Sub-Account
--------------- -------------- ---------------
<S> <C> <C> <C>
Assets
Investments at cost $1,830,010 $4,229,473 $1,129,455
============= ============ ==============
Investment in The Phoenix Edge Series Fund, at market $2,129,843 $4,377,275 $1,130,949
------------- ------------ --------------
Total assets 2,129,843 4,377,275 1,130,949
Liabilities
Accrued expenses to related party 2,071 6,346 1,108
------------- ------------ --------------
Net assets $2,127,772 $4,370,929 $1,129,841
============= ============ ==============
Accumulation units outstanding 1,543,156 4,053,646 1,132,687
============= ============ ==============
Unit value $ 1.378845 $ 1.078271 $ 0.997488
============= ============ ==============
</TABLE>
<TABLE>
<CAPTION>
Wanger
International Wanger U.S.
Small Cap Small Cap
Sub-Account Sub-Account
-------------- ---------------
<S> <C> <C>
Assets
Investments at cost $12,880,413 $20,124,073
============ =============
Investment in Wanger Advisors Trust, at market $13,951,952 $23,089,194
------------ -------------
Total assets 13,951,952 23,089,194
Liabilities
Accrued expenses to related party 14,992 23,488
------------ -------------
Net assets $13,936,960 $23,065,706
============ =============
Accumulation units outstanding 9,834,236 16,756,995
============ =============
Unit value $ 1.417188 $ 1.376482
============ =============
</TABLE>
See Notes to Financial Statements
B-6
<PAGE>
STATEMENT OF OPERATIONS
For the period ended December 31, 1996
<TABLE>
<CAPTION>
Multi-Sector
Money Market Growth Fixed Income
Sub-Account Sub-Account Sub-Account
--------------- -------------- ---------------
<S> <C> <C> <C>
Investment income
Distributions $623,817 $ 307,075 $ 555,468
Expenses
Mortality and expense risk charges 174,827 358,276 82,192
------------- ------------ --------------
Net investment income (loss) 448,990 (51,201) 473,276
------------- ------------ --------------
Net realized gain (loss) from share transactions -- 4,620 (372)
Net realized gain distribution from Fund -- 3,215,671 445,721
Net unrealized depreciation on investment -- (104,167) (136,643)
------------- ------------ --------------
Net gain on investments -- 3,116,124 308,706
------------- ------------ --------------
Net increase in net assets resulting from operations $448,990 $3,064,923 $ 781,982
============= ============ ==============
</TABLE>
<TABLE>
<CAPTION>
Total Return International Balanced
Sub-Account Sub-Account Sub-Account
--------------- -------------- ---------------
<S> <C> <C> <C>
Investment income
Distributions $ 205,785 $ 44,455 $ 106,947
Expenses
Mortality and expense risk charges 124,491 21,153 46,448
------------- ------------ --------------
Net investment income 81,294 23,302 60,499
------------- ------------ --------------
Net realized gain (loss) from share transactions (20,714) (48) 4,019
Net realized gain distribution from Fund 876,124 77,451 460,553
Net unrealized appreciation (depreciation) on investment (280,377) 123,310 (134,164)
------------- ------------ --------------
Net gain on investments 575,033 200,713 330,408
------------- ------------ --------------
Net increase in net assets resulting from operations $ 656,327 $224,015 $ 390,907
============= ============ ==============
</TABLE>
<TABLE>
<CAPTION>
Aberdeen
Real Estate Strategic Theme New Asia
Sub-Account Sub-Account(1) Sub-Account(2)
--------------- --------------- ---------------
<S> <C> <C> <C>
Investment income
Distributions $ 36,227 $ 18,463 $ 5,646
Expenses
Mortality and expense risk charges 11,221 30,154 2,138
------------- ------------- --------------
Net investment income (loss) 25,006 (11,691) 3,508
------------- ------------- --------------
Net realized gain (loss) from share transactions 2,267 12,195 (2,679)
Net realized gain distribution from Fund 21,853 -- --
Net unrealized appreciation on investment 299,093 147,802 1,494
------------- ------------- --------------
Net gain (loss) on investments 323,213 159,997 (1,185)
------------- ------------- --------------
Net increase in net assets resulting from operations $348,219 $148,306 $ 2,323
============= ============= ==============
</TABLE>
<TABLE>
<CAPTION>
Wanger Wanger
International U.S.
Small Cap Small Cap
Sub-Account Sub-Account
--------------- --------------
<S> <C> <C>
Investment income
Distributions $ 4,923 $ 5,736
Expenses
Mortality and expense risk charges 88,983 130,868
------------- ------------
Net investment loss (84,060) (125,132)
------------- ------------
Net realized gain (loss) from share transactions (7,606) 2,035
Net unrealized appreciation on investment 1,063,766 2,984,536
------------- ------------
Net gain on investments 1,056,160 2,986,571
------------- ------------
Net increase in net assets resulting from operations $ 972,100 $2,861,439
============= ============
</TABLE>
(1)From inception February 15, 1996 to December 31, 1996
(2)From inception September 19, 1996 to December 31, 1996
See Notes to Financial Statements
B-7
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
For the period ended December 31, 1996
<TABLE>
<CAPTION>
Multi-Sector
Money Market Growth Fixed Income
Sub-Account Sub-Account Sub-Account
--------------- -------------- ---------------
<S> <C> <C> <C>
From operations
Net investment income (loss) $ 448,990 $ (51,201) $ 473,276
Net realized gain -- 3,220,291 445,349
Net unrealized depreciation -- (104,167) (136,643)
------------- ------------ --------------
Net increase in net assets resulting from operations 448,990 3,064,923 781,982
------------- ------------ --------------
From accumulation unit transactions
Participant deposits 100,807,056 16,137,985 3,658,318
Participant transfers (83,156,951) 28,719,551 10,819,170
Participant withdrawals (797,035) (261,356) (138,991)
------------- ------------ --------------
Net increase in net assets resulting from participant
transactions 16,853,070 44,596,180 14,338,497
------------- ------------ --------------
Net increase in net assets 17,302,060 47,661,103 15,120,479
Net assets
Beginning of period 5,981,138 3,288,575 335,698
------------- ------------ --------------
End of period $ 23,283,198 $50,949,678 $15,456,177
============= ============ ==============
</TABLE>
<TABLE>
<CAPTION>
Total Return International Balanced
Sub-Account Sub-Account Sub-Account
--------------- ---------------- --------------
<S> <C> <C> <C>
From operations
Net investment income $ 81,294 $ 23,302 $ 60,499
Net realized gain 855,410 77,403 464,572
Net unrealized appreciation (depreciation) (280,377) 123,310 (134,164)
------------- -------------- ------------
Net increase in net assets resulting from operations 656,327 224,015 390,907
------------- -------------- ------------
From accumulation unit transactions
Participant deposits 3,603,086 1,016,275 1,688,276
Participant transfers 7,602,197 2,297,094 3,646,583
Participant withdrawals (52,881) (14,382) (62,505)
------------- -------------- ------------
Net increase in net assets resulting from participant
transactions 11,152,402 3,298,987 5,272,354
------------- -------------- ------------
Net increase in net assets 11,808,729 3,523,002 5,663,261
Net assets
Beginning of period 3,041,464 134,264 752,986
------------- -------------- ------------
End of period $14,850,193 $3,657,266 $6,416,247
============= ============== ============
</TABLE>
See Notes to Financial Statements
B-8
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
For the period ended December 31, 1996
(Continued)
<TABLE>
<CAPTION>
Aberdeen
Real Estate Strategic Theme New Asia
Sub-Account Sub-Account(1) Sub-Account(2)
-------------- --------------- ---------------
<S> <C> <C> <C>
From operations
Net investment income (loss) $ 25,006 $ (11,691) $ 3,508
Net realized gain (loss) 24,120 12,195 (2,679)
Net unrealized appreciation 299,093 147,802 1,494
------------ ------------- --------------
Net increase in net assets resulting from operations 348,219 148,306 2,323
------------ ------------- --------------
From accumulation unit transactions
Participant deposits 537,771 1,162,846 190,675
Participant transfers 1,009,485 3,078,265 937,753
Participant withdrawals (5,358) (18,488) (910)
------------ ------------- --------------
Net increase in net assets resulting from participant
transactions 1,541,898 4,222,623 1,127,518
------------ ------------- --------------
Net increase in net assets 1,890,117 4,370,929 1,129,841
Net assets
Beginning of period 237,655 0 0
------------ ------------- --------------
End of period $2,127,772 $4,370,929 $1,129,841
============ ============= ==============
</TABLE>
<TABLE>
<CAPTION>
Wanger Wanger
International U.S.
Small Cap Small Cap
Sub-Account Sub-Account
--------------- ---------------
<S> <C> <C>
From operations
Net investment loss $ (84,060) $ (125,132)
Net realized gain (loss) (7,606) 2,035
Net unrealized appreciation 1,063,766 2,984,536
------------- --------------
Net increase in net assets resulting from operations 972,100 2,861,439
------------- --------------
From accumulation unit transactions
Participant deposits 4,661,212 5,084,461
Participant transfers 8,094,139 13,945,437
Participant withdrawals (70,544) (74,992)
------------- --------------
Net increase in net assets resulting from participant
transactions 12,684,807 18,954,906
------------- --------------
Net increase in net assets 13,656,907 21,816,345
Net assets
Beginning of period 280,053 1,249,361
------------- --------------
End of period $13,936,960 $23,065,706
============= ==============
</TABLE>
(1)From inception February 15, 1996 to December 31, 1996
(2)From inception September 19, 1996 to December 31, 1996
See Notes to Financial Statements
B-9
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
From inception July 31, 1995 through December 31, 1995
<TABLE>
<CAPTION>
Multi-Sector
Money Market Growth Fixed Income
Sub-Account Sub-Account Sub-Account
--------------- -------------- ---------------
<S> <C> <C> <C>
From operations
Net investment income (loss) $ 15,818 $ (813) $ 6,644
Net realized gain -- 346,083 9
Net unrealized depreciation -- (248,575) (564)
------------- ------------ --------------
Net increase in net assets resulting from operations 15,818 96,695 6,089
------------- ------------ --------------
From accumulation unit transactions
Participant deposits 7,285,767 2,481,750 226,998
Participant transfers (1,318,515) 713,637 102,628
Participant withdrawals (1,932) (3,507) (17)
------------- ------------ --------------
Net increase in net assets resulting from participant
transactions 5,965,320 3,191,880 329,609
------------- ------------ --------------
Net increase in net assets 5,981,138 3,288,575 335,698
Net assets
Beginning of period 0 0 0
------------- ------------ --------------
End of period $ 5,981,138 $3,288,575 $335,698
============= ============ ==============
</TABLE>
<TABLE>
<CAPTION>
Total Return International Balanced
Sub-Account Sub-Account Sub-Account
--------------- ---------------- --------------
<S> <C> <C> <C>
From operations
Net investment income (loss) $ 25,708 $ (210) $ 4,997
Net realized gain (loss) 179,158 (114) 13,785
Net unrealized appreciation (depreciation) (125,252) 1,434 (1,449)
------------- -------------- ------------
Net increase in net assets resulting from operations 79,614 1,110 17,333
------------- -------------- ------------
From accumulation unit transactions
Participant deposits 2,580,979 93,558 656,615
Participant transfers 381,238 39,596 82,588
Participant withdrawals (367) -- (3,550)
------------- -------------- ------------
Net increase in net assets resulting from participant
transactions 2,961,850 133,154 735,653
------------- -------------- ------------
Net increase in net assets 3,041,464 134,264 752,986
Net assets
Beginning of period 0 0 0
------------- -------------- ------------
End of period $3,041,464 $134,264 $752,986
============= ============== ============
</TABLE>
<TABLE>
<CAPTION>
Wanger Wanger
International U.S.
Real Estate Small Cap Small Cap
Sub-Account Sub-Account Sub-Account
--------------- --------------- ---------------
<S> <C> <C> <C>
From operations
Net investment income (loss) $ 2,619 $ (260) $ (3,079)
Net realized gain (loss) 798 (6) 29
Net unrealized appreciation (depreciation) 739 7,774 (19,415)
------------- ------------- --------------
Net increase (decrease) in net assets resulting from
operations 4,156 7,508 (22,465)
------------- ------------- --------------
From accumulation unit transactions
Participant deposits 227,039 214,634 940,831
Participant transfers 6,466 58,021 331,307
Participant withdrawals (6) (110) (312)
------------- ------------- --------------
Net increase in net assets resulting from participant
transactions 233,499 272,545 1,271,826
------------- ------------- --------------
Net increase in net assets 237,655 280,053 1,249,361
Net assets
Beginning of period 0 0 0
------------- ------------- --------------
End of period $237,655 $280,053 $1,249,361
============= ============= ==============
</TABLE>
See Notes to Financial Statements
B-10
<PAGE>
PHL VARIABLE ACCUMULATION ACCOUNT
NOTES TO FINANCIAL STATEMENTS
NOTE 1--ORGANIZATION
PHL Variable Accumulation Account (the "Account") is a separate investment
account of PHL Variable Insurance Company (PHL Variable). The Account is
organized as a unit investment trust and currently consists of eleven
Sub-Accounts, each of which invest solely in a designated portfolio of The
Phoenix Edge Series Fund and Wanger Advisors Trust (the "Funds"). The Account is
offered as The Big Edge Choice to individuals (VA4). Contract owners may also
direct the allocation of their investments between the Account and the
Guaranteed Interest Account of the general account of PHL Variable through
participant transfers.
Each Series has distinct investment objectives. The Money Market Series is
a pooled short-term investment fund, the Growth Series is a growth common stock
fund, the Multi-Sector Fixed Income (formerly Bond) Series is a long-term debt
fund, the Total Return Series invests in equity securities and long and
short-term debt, the International Series invests primarily in an
internationally diversified portfolio of equity securities, the Balanced Series
is a balanced fund which invests in growth stocks and at least 25% of its assets
in fixed income senior securities, the Real Estate Series invests in marketable
securities of publicly traded real estate investment trusts ("REITs") and
companies that are principally engaged in the real estate industry, the
Strategic Theme Series invests in securities of companies believed to benefit
from specific trends, the Aberdeen New Asia Series invests primarily in a
diversified equity securities of issuers organized and principally operating in
Asia, excluding Japan, the Wanger International Small Cap Series invests in
securities of non-U.S. companies with a stock market capitalization of less than
$1 billion and the Wanger U.S. Small Cap Series invests in growth common stock
of U.S. companies with stock market capitalization of less than $1 billion.
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES
A. VALUATION OF INVESTMENTS: Investments are made exclusively in the Funds
and are valued at the net asset values per share of the respective Series.
B. INVESTMENT TRANSACTIONS AND RELATED INCOME: Realized gains and losses
include capital gain distributions from the Funds as well as gains and losses
on sales of shares in the Funds determined on the LIFO (last in, first out)
basis.
C. INCOME TAXES: The Account is not a separate entity from PHL Variable and
under current federal income tax law, income arising from the Account is not
taxed since reserves are established equivalent to such income. Therefore, no
provision for related federal or state income taxes is required.
D. DISTRIBUTIONS: Distributions are recorded as investment income on the
ex-dividend date.
NOTE 3--PURCHASES AND SALES OF SHARES OF THE FUNDS
Purchases and sales of shares of the Funds for the period ended December
31, 1996 aggregated the following:
SUB-ACCOUNT PURCHASES SALES
- ----------- --------- -------
The Phoenix Edge Series Fund:
Money Market................. $47,361,699 $30,037,956
Growth....................... 49,376,746 1,561,483
Multi-Sector Fixed Income.... 16,228,014 954,493
Total Return................. 13,924,742 1,800,978
International................ 3,637,577 233,961
Balanced..................... 6,341,288 541,324
Real Estate.................. 1,768,284 177,503
Strategic Theme.............. 6,201,342 1,984,064
Aberdeen New Asia............ 1,249,699 117,565
Wanger Advisors Trust:
International Small Cap...... 13,230,315 614,716
U.S. Small Cap............... 19,706,676 854,552
B-11
<PAGE>
PHL VARIABLE ACCUMULATION ACCOUNT
NOTES TO FINANCIAL STATEMENTS
NOTE 4--PARTICIPANT ACCUMULATION UNIT TRANSACTIONS (IN UNITS)
<TABLE>
<CAPTION>
SUB-ACCOUNT
----------------------------------------------------------------------------------------
MONEY MULTI-SECTOR TOTAL
MARKET GROWTH FIXED INCOME RETURN INTERNATIONAL BALANCED
--------------- ------------ --------------- ------------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C>
VA4
Units outstanding,
beginning of period 5,893,015 3,036,889 319,171 2,918,821 132,979 718,774
Participant deposits 97,324,646 14,293,357 3,323,373 3,351,407 918,654 1,566,608
Participant transfers (80,299,873) 25,257,731 9,730,770 7,026,404 2,055,621 3,387,854
Participant withdrawals (775,469) (222,502) (121,445) (47,747) (12,721) (57,401)
------------- ---------- ------------- ----------- ------------- ----------
Units outstanding, end
of period 22,142,319 42,365,475 13,251,869 13,248,885 3,094,533 5,615,835
============= ========== ============= =========== ============= ==========
</TABLE>
<TABLE>
<CAPTION>
ABERDEEN WANGER INTERNATIONAL WANGER U.S.
REAL ESTATE STRATEGIC THEME NEW ASIA SMALL CAP SMALL CAP
-------------- ---------------- ------------ --------------------- -------------
<S> <C> <C> <C> <C> <C>
Units outstanding,
beginning of period 226,316 0 0 257,362 1,312,796
Participant deposits 467,866 1,093,699 191,613 3,505,396 4,182,044
Participant transfers 853,440 2,977,544 941,998 6,122,656 11,320,032
Participant withdrawals (4,466) (17,597) (924) (51,178) (57,877)
------------ -------------- ---------- ------------------- -------------
Units outstanding, end of
period 1,543,156 4,053,646 1,132,687 9,834,236 16,756,995
============ ============== ========== ==================== ============
</TABLE>
NOTE 5--INVESTMENT ADVISORY FEES AND RELATED PARTY TRANSACTIONS
PHL Variable and its affiliate, Phoenix Equity Planning Corporation, a
registered broker/dealer in securities, provide all services to the Account.
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 its deductions for such expenses. In return for the
assumption of these mortality and expense risks, PHL Variable charges the
Sub-Accounts the daily equivalent of 0.40%, 0.85% and 0.125% on an annual basis
for mortality, expense risks and daily administrative fees, respectively.
As compensation for administrative services provided to the Account, PHL
Variable additionally receives $35 per year from each contract, which is
deducted from the Sub-Account holding the assets of the participant, or on a pro
rata basis from two or more Sub-Accounts in relation to their values under the
contract. Such fees aggregated $11,077 for the period ended December 31, 1996.
Phoenix Equity Planning Corporation is the principal underwriter and
distributor for the Account. PHL Variable reimburses Phoenix Equity Planning
Corporation for expenses incurred as underwriter.
On surrender of a contract, contingent deferred sales charges, which vary
from 0-7% depending upon the duration of each contract deposit, are deducted
from the proceeds and are paid to PHL Variable as reimbursement for services
provided. Contingent deferred sales charges deducted and paid to PHL Variable
aggregated $27,251 for the period ended December 31, 1996.
NOTE 6--DISTRIBUTION OF NET INCOME
The Account does not expect to declare dividends to participants from
accumulated net income. The accumulated net income is distributed to
participants as part of withdrawals of amounts in the form of surrenders, death
benefits, transfers or annuity payments in excess of net purchase payments.
NOTE 7--DIVERSIFICATION REQUIREMENTS
Under the provisions of Section 817(h) of the Internal Revenue Code (the
Code), a variable annuity contract, other than a contract issued in connection
with certain types of employee benefit plans, will not be treated as an annuity
contract for federal tax purposes for any period for which the investments of
the segregated asset account on which the contract is based are not adequately
diversified. The Code provides that the "adequately diversified" requirement may
be met if the underlying investments satisfy either a statutory safe harbor test
or diversification requirements set forth in regulations issued by the Secretary
of the Treasury.
The Internal Revenue Service has issued regulations under Section 817(h) of
the Code. PHL Variable believes that the Account satisfies the current
requirements of the regulations, and it intends that the Account will continue
to meet such requirements.
B-12
<PAGE>
One Financial Plaza Telephone 860 240 2000
Hartford, CT 06103
REPORT OF INDEPENDENT ACCOUNTANTS
[LOGOTYPE] PRICE WATERHOUSE LLP [LOGO]
To the Board of Directors of PHL Variable Insurance Company and
Participants of PHL Variable Accumulation Account
In our opinion, the accompanying statement of assets and liabilities and the
related statements of operations and of changes in net assets present fairly,
in all material respects, the financial position of the Money Market
Sub-Account, Growth Sub- Account, Multi-Sector Fixed Income Sub-Account
(formerly the Bond Sub-Account), Total Return Sub-Account, International
Sub-Account, Balanced Sub-Account, Real Estate Sub-Account, Strategic Theme
Sub-Account, Aberdeen New Asia Sub- Account, Wanger International Small Cap
Sub-Account and Wanger U.S. Small Cap Sub-Account (constituting the PHL
Variable Accumulation Account, hereafter referred to as the "Account") at
December 31, 1996, the results of each of their operations for the periods
then ended and the changes in each of their net assets for each of the
periods indicated, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the
Account's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits, which included confirmation of investments at December 31, 1996
by correspondence with the Funds, provide a reasonable basis for the opinion
expressed above.
/s/Price Waterhouse LLP
Hartford, Connecticut
February 12, 1997
B-13
<PAGE>
PHL VARIABLE ACCUMULATION ACCOUNT
PHL Variable Insurance Company
One American Row
Hartford, Connecticut 06115
Underwriter
Phoenix Equity Planning Corporation
P.O. Box 2200
100 Bright Meadow Boulevard
Enfield, Connecticut 06083-2200
Custodians
The Chase Manhattan Bank, N.A.
1 Chase Manhattan Plaza
Floor 3B
New York, New York 10081
Brown Brothers Harriman & Co.
(International Series, Aberdeen New Asia Series)
40 Water Street
Boston, Massachusetts 02109
State Street Bank and Trust
(Real Estate Series)
P.O. Box 351
Boston, Massachusetts 02101
Independent Accountants
Price Waterhouse LLP
One Financial Plaza
Hartford, Connecticut 06103
B-14
<PAGE>
PHL VARIABLE
INSURANCE COMPANY
FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
B-15
<PAGE>
PHL VARIABLE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF PM HOLDINGS, INC.)
TABLE OF CONTENTS
- ----------------------------------------------------------------------------
Page
Reports of Independent Accountants.................................. 17-18
Balance Sheets at December 31, 1996 and 1995........................ 19
Statements of Operations for the Years Ended
December 31, 1996, 1995 and 1994.................................. 20
Statements of Stockholder's Equity for the Years Ended
December 31, 1996, 1995 and 1994.................................. 21
Statements of Cash Flows for the Years Ended
December 31, 1996, 1995 and 1994................................... 22
Notes to Financial Statements....................................... 23-33
B-16
<PAGE>
Report of Independent Accountants
February 12, 1997
To the Board of Directors
and Stockholder of
PHL Variable Insurance Company
In our opinion, the accompanying balance sheets and the related statements of
operations, of changes in stockholder's equity and of cash flows present fairly,
in all material respects, the financial position of PHL Variable Insurance
Company (the Company), at December 31, 1996 and 1995 and the results of its
operations and its cash flows for the years ended December 31, 1996 and 1995 and
the period from June 1, 1994 through December 31, 1994 in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
<PAGE>
Report of Independent Accountants
February 14, 1995
To the Board of Directors
and Stockholder of
PHL Variable Insurance Company
(formerly Dreyfus Consumer Life Insurance Company)
In our opinion, the accompanying statements of operations, of changes in
stockholder's equity and of cash flows present fairly, in all material respects,
the results of operations and cash flows of Dreyfus Consumer Life Insurance
Company (Predecessor or the Company), for the period from January 1, 1994
through May 31, 1994 in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management and evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for the opinion expressed
above.
As discussed in Note 2 to the financial statements, the Company adopted
Statement of Financial Accounting Standard No. 115, Accounting for Certain
Investments in Debt and Equity Securities, in 1994.
<PAGE>
PHL VARIABLE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF PM HOLDINGS, INC.)
BALANCE SHEETS
- --------------------------------------------------------------------------------
DECEMBER 31,
1996 1995
(IN THOUSANDS)
ASSETS
Investments:
Fixed maturities:
Held-to-maturity, at amortized cost $ 1,827
Available-for-sale, at fair value 15,279 $ 11,023
-------------- --------------
Total investments 17,106 11,023
Cash and cash equivalents 1,822 8,445
Accrued investment income 208 165
Deferred policy acquisition costs 9,557 1,061
Current income taxes 14
Deferred income taxes 363
Other assets 225 44
Goodwill 756 859
Separate account assets 159,418 15,312
-------------- --------------
Total assets $ 189,469 $ 36,909
============== ==============
LIABILITIES
Contractholders' funds at interest $ 11,569 $ 3,497
Other liabilities 1,678 1,295
Current income taxes 72
Deferred income taxes 52
Separate account liabilities 159,418 15,312
-------------- --------------
Total liabilities 172,665 20,228
-------------- --------------
EQUITY
Common stock, $1 par value, 2,500,000
shares authorized, issued and outstanding 2,500 2,500
Additional paid-in-capital 13,864 13,864
Unrealized investment gains, net 44 221
Retained earnings 396 96
-------------- --------------
Total equity 16,804 16,681
-------------- --------------
Total liabilities and equity $ 189,469 $ 36,909
============== ==============
The accompanying notes are an integral part of these statements.
B-19
<PAGE>
PHL VARIABLE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF PM HOLDINGS, INC.)
STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR
PERIOD FROM PERIOD FROM
SUCCESSOR SUCCESSOR JUNE 1, JANUARY 1,
YEAR ENDED YEAR ENDED 1994 TO 1994
DECEMBER 31, DECEMBER 31, DECEMBER 31, TO MAY 31,
1996 1995 1994 1994
(IN THOUSANDS)
<S> <C> <C> <C> <C>
REVENUES
Investment product fees $ 1,491 $ 133
Net investment income 1,097 828 $ 352 $ 137
Net realized investment losses (18) (29)
------------------- ------------------- ----------------- ------------------
Total revenues 2,570 961 323 137
------------------- ------------------- ----------------- ------------------
BENEFITS, LOSSES AND EXPENSES
Policy benefits and payments 397 54
Policy acquisition expenses 578 (42)
Other operating expenses 1,124 965 168 24
------------------- ------------------- ----------------- ------------------
Total benefits, losses and expenses 2,099 977 168 24
------------------- ------------------- ----------------- ------------------
INCOME (LOSS) BEFORE INCOME TAXES 471 (16) 155 113
Income tax expense (benefit) 171 (23) 66 (13)
------------------- ------------------- ------------------ ------------------
NET INCOME $ 300 $ 7 $ 89 $ 126
=================== =================== ================== ==================
</TABLE>
The accompanying notes are an integral part of these statements.
B-20
<PAGE>
PHL VARIABLE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF PM HOLDINGS, INC.)
STATEMENTS OF STOCKHOLDER'S EQUITY
- --------------------------------------------------------------------------------
<TABLE>
PREDECESSOR
PERIOD FROM JANUARY 1, 1994
TO MAY 31, 1994
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN RETAINED STOCKHOLDER'S
STOCK CAPITAL EARNINGS EQUITY
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Balances at December 31, 1993 $ 2,000 $ 4,477 $ 3,160 $ 9,637
Adoption of FAS 115 (174) (174)
Net income 126 126
--------------- ------------------ ----------------- --------------------
Balances at May 31, 1994 $ 2,000 $ 4,477 $ 3,112 $ 9,589
--------------- ------------------ ----------------- --------------------
</TABLE>
<TABLE>
SUCCESSOR
PERIOD FROM JUNE 1, 1994
TO DECEMBER 31, 1996
<CAPTION>
Additional Net Unrealized Total
COMMON Paid-in Retained Investment Stockholder's
STOCK Capital Earnings Gains (Losses) Equity
(in thousands)
<S> <C> <C> <C> <C> <C>
Balances at May 31, 1994 $ 2,000 $ 4,477 $ 3,112 $ 9,589
Acquisition adjustment 3,887 (3,112) 775
------------- ------------- --------------- -------------
Balances at June 1, 1994 2,000 8,364 10,364
Net income 89 89
Net unrealized loss $ (110) (110)
------------- ------------- --------------- ------------- -------------
Balances at December 31, 1994 2,000 8,364 89 (110) 10,343
Capital contribution from parent 500 5,500 6,000
Net income 7 7
Net unrealized gain 331 331
------------- ------------- --------------- ------------- -------------
Balances at December 31, 1995 2,500 13,864 96 221 16,681
Net income 300 300
Net unrealized loss (177) (177)
------------- ------------- --------------- ------------- -------------
Balances at December 31, 1996 $ 2,500 $ 13,864 $ 396 $ 44 $ 16,804
============= ============= =============== ============= =============
</TABLE>
The accompanying notes are an integral part of these statements.
B-21
<PAGE>
PHL VARIABLE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF PM HOLDINGS, INC.)
STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR
PERIOD FROM PERIOD FROM
SUCCESSOR SUCCESSOR JUNE 1, JANUARY 1,
YEAR ENDED YEAR ENDED 1994 TO 1994 TO
DECEMBER 31, DECEMBER 31, DECEMBER 31, MAY 31,
1996 1995 1994 1994
(IN THOUSANDS)
CASH FLOW FROM OPERATING ACTIVITIES
<S> <C> <C> <C> <C>
Net income $ 300 $ 7 $ 89 $ 126
ADJUSTMENTS TO RECONCILE NET INCOME
TO NET CASH (USED IN) PROVIDED BY OPERATIONS
Net realized investment losses 18 29
Amortization of bond premium 6 9
Amortization and depreciation 106 102 60 11
Deferred income taxes and other assets (501) (192) 7 11
Increase in accrued investment income (43) (7) (67) 24
Increase in deferred policy acquisition costs (8,551) (1,061)
Increase in contractholder funds 8,072 3,497
Increase (decrease) in other liabilities 1 (13)
Increase (decrease) in payable to affiliates 222 1,184 108 (112)
------------------- ------------------ ------------------ ------------------
Net cash (used in) provided by operating activities (377) 3,537 226 56
------------------- ------------------ ------------------ ------------------
CASH FLOW FROM INVESTING ACTIVITIES Proceeds from disposals of fixed maturities:
Available-for-sale 3,219 1,532 43,474 2,023
Purchase of fixed maturities:
Available-for-sale (7,638) (2,714) (44,045) (2,724)
Held-to-maturity (1,827)
------------------- ------------------ ------------------ ------------------
Net cash used for investing activities (6,246) (1,182) (571) (701)
------------------- ------------------ ------------------ ------------------
CASH FLOW FROM FINANCING ACTIVITIES
Capital contribution from parent 6,000
------------------- ------------------ ------------------ ------------------
Net cash provided by financing activities 6,000
------------------- ------------------ ------------------ ------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS (6,623) 8,355 (345) (645)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 8,445 90 435 1,080
------------------- ------------------ ------------------ ------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,822 $ 8,445 $ 90 $ 435
================== ================== ================== ==================
SUPPLEMENTAL CASH FLOW INFORMATION
Income taxes paid, net $ 569 $ 13 $ 64 $ 32
</TABLE>
The accompanying notes are an integral part of these statements.
B-22
<PAGE>
PHL VARIABLE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF PM HOLDINGS, INC.)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. DESCRIPTION OF BUSINESS
On May 31, 1994, PM Holdings, Inc. (PM Holdings) acquired Dreyfus Consumer
Life Insurance Company from The Dreyfus Corporation and renamed the company
PHL Variable Insurance Company (PHL Variable or the Company). PM Holdings
accounted for the acquisition of the Company under the purchase method of
accounting. The assets and liabilities of the Company were recorded at
their fair value as of the date of acquisition and goodwill was pushed-down
to the Company from PM Holdings. PM Holdings is a wholly-owned subsidiary
of Phoenix Home Life Mutual Insurance Company (Phoenix).
PHL Variable offers variable annuity products in the United States designed
for individual purchasers and a group product offered to employees to fund
qualified pension plan deposits.
Phoenix and its affiliates provide services and facilities to the Company
and are reimbursed through a cost allocation process. Investment related
expenses are allocated to the Company from PM Holdings.
Effective January 1, 1995, the money management businesses of Phoenix were
transferred to Phoenix Securities Group, Inc. (Phoenix Securities Group), a
wholly-owned subsidiary of PM Holdings. Phoenix Securities Group entered
into contracts to manage the general account and separate account
investments of PHL Variable. On November 1, 1995, PM Holdings merged
Phoenix Securities Group into Duff & Phelps Corporation, forming Phoenix
Duff & Phelps Corporation (PDP). PM Holdings owns approximately 60% of the
outstanding PDP common stock.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
These financial statements have been prepared in accordance with generally
accepted accounting principles (GAAP). The preparation of financial
statements in conformity with GAAP requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities
at the date of the financial statements and the reported amounts of revenue
and expenses during the reporting period. Actual results could differ from
those estimates. Significant estimates used in determining contractholder
liabilities, taxes and valuation allowances are discussed throughout the
Notes to Financial Statements. Certain reclassifications have been made to
the 1995 and 1994 amounts to conform with the 1996 presentation.
The financial statements as of December 31, 1996 and 1995 and for the
period from June 1, 1994 through December 31, 1994 are those of PHL
Variable (the Successor). The financial statements for the period from
January 1, 1994 through May 31, 1994 are those of Dreyfus Consumer Life
Insurance Company (the Predecessor) before its business and net assets were
acquired by PM Holdings.
B-23
<PAGE>
PHL VARIABLE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF PM HOLDINGS, INC.)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
RECENT ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standard (SFAS) No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of" was adopted by PHL Variable in 1996. SFAS No. 121 mandates
specific methodologies to be used for identifying and measuring the
impairment of long-lived assets. Adoption of SFAS No. 121 did not
materially impact PHL Variable's financial statements.
Effective January 1, 1995, the Company adopted the provision of Statement
of Position 94-6 (SOP 94-6), Disclosure of Certain Significant Risks and
Uncertainties. SOP 94-6 requires disclosure about the nature of a reporting
entity's operations and the use of estimates in the preparation of
financial statements.
In 1994, PHL Variable adopted SFAS No. 115, Accounting for Certain
Investments in Debt and Equity Securities. This statement requires PHL
Variable to segregate its debt into three categories: held to maturity,
available for sale or trading. The effect of implementing SFAS No. 115
resulted in a decrease in investment assets and stockholder's equity of
$174,332 in 1994. Such bonds were previously carried at amortized cost.
VALUATION OF INVESTMENTS
Investments in fixed maturities include bonds and asset-backed securities
including collateralized mortgage obligations (CMOs). The Company
classifies all its fixed maturities as either held-to-maturity or
available-for-sale investments. Fixed maturities held-to-maturity consist
of private placement bonds presented at amortized cost, net of impairments,
that management intends and has the ability to hold until maturity. Fixed
maturities available-for-sale are presented at fair value with unrealized
gains or losses included in equity and consist of public bonds that
management may not hold until maturity. Fixed maturities are considered
impaired when a decline in value is considered to be other than temporary.
Short-term investments are carried at amortized cost, which approximates
fair value.
Realized investment gains and losses, other than those related to separate
accounts for which the Company does not bear the investment risk, are
determined by the specific identification method and reported as a
component of revenue. A realized investment loss is recorded when an
investment valuation reserve is determined. Valuation reserves are netted
against the asset categories to which they apply and changes in the
valuation reserves are included in realized investment gains and losses.
Unrealized investment gains and losses on fixed maturities
available-for-sale are included as a separate component of equity, net of
deferred income taxes and deferred policy acquisition costs.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents includes cash on hand, money market instruments
and short term investments purchased with a maturity of less than three
months.
B-24
<PAGE>
PHL VARIABLE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF PM HOLDINGS, INC.)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
DEFERRED POLICY ACQUISITION COSTS
The costs of acquiring new business, principally commissions, distribution
and policy issue expenses, all of which vary with and are primarily related
to the production of revenues, are deferred. Deferred policy acquisition
costs are subject to recoverability testing at the time of policy issue and
loss recognition at the end of each accounting period.
Deferred policy acquisition costs are amortized in proportion to total
estimated gross profits over the expected average life of the contracts
using estimated gross margins arising principally from investment,
mortality and expense margins and surrender charges based on historical and
anticipated experience, updated at the end of each accounting period.
OTHER ASSETS
Other assets primarily consist of prepaid expenses.
GOODWILL
Goodwill represents the excess of the cost of businesses acquired over the
fair value of their net assets. Effective June 1, 1994, goodwill arising
from the acquisition of the Company is amortized using the straight-line
method over a period of 10 years, the expected period of benefit from the
acquisition. Prior to June 1, 1994, goodwill was amortized over a period of
20 years. Management periodically reevaluates the propriety of the carrying
value of assets. Assets are considered impaired if the carrying value
exceeds the expected future undiscounted cash flows. Such analyses are
performed at least annually or more frequently if warranted by events or
circumstances affecting PHL Variable's business. At this time, management
believes that no significant impairment of the remaining goodwill asset has
occurred and that no reduction of the estimated useful lives is warranted.
SEPARATE ACCOUNTS
Separate account assets and liabilities are funds maintained in accounts to
meet specific investment objectives of contractholders who bear the
investment risk. Investment income and investment gains and losses accrue
directly to such contractholders. The assets of each account are legally
segregated and are not subject to claims that arise out of any other
business of the Company. The assets and liabilities are carried at market
value. Deposits, net investment income and realized investment gains and
losses for these accounts are excluded from revenues, and the related
liability increases are excluded from benefits and expenses. Amounts
assessed to the contractholders for management services are included in
revenues.
CONTRACTHOLDERS' FUNDS AT INTEREST
Contractholder deposit funds consist of deposits received from customers
and investment earnings on their fund balances, less administrative
charges.
B-25
<PAGE>
PHL VARIABLE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF PM HOLDINGS, INC.)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
INVESTMENT PRODUCT FEES
Revenues for investment-related products consist of net investment income
and contract charges assessed against the fund values. Related benefit
expenses primarily consist of net investment income credited to the fund
values after deduction for investment and risk charges.
INCOME TAXES
For the tax year ended December 31, 1996, PHL Variable plans to file a
separate federal income tax return. PHL Variable filed separate federal
income tax returns for the year ended December 31, 1995 and for the period
June 1, 1994 through December 31, 1994.
For the period January 1, 1994 through May 31, 1994, the former Dreyfus
Consumer Life Insurance Company (DCLIC) was included in the consolidated
federal income tax return filed by The Dreyfus Corporation (the
Corporation). All participants in the consolidated federal income tax
return were severally liable for the full amount of any taxes payable by
the group. In accordance with an income tax apportionment agreement with
the Corporation, the provision for DCLIC's federal income tax was computed
on a separate return basis.
Deferred income taxes result from temporary differences between the tax
basis of assets and liabilities and their recorded amounts for financial
reporting purposes. These differences result primarily from policy
liabilities and accruals, policy acquisition expenses and unrealized gains
or losses on investments.
EMPLOYEE BENEFITS
Phoenix sponsors pension and savings plans (the Plans) for its employees
and agents, and those of its subsidiaries. The qualified Plans comply with
requirements established by the Employee Retirement Income Security Act of
1974 (ERISA) and excess benefit plans provide for that portion of pension
obligations which is in excess of amounts permitted by ERISA. Phoenix also
provides certain health care and life insurance benefits for active and
retired employees. PHL Variable incurs applicable employee benefit expenses
through the process of cost allocation by Phoenix.
Applicable information regarding the actuarial present value of vested and
non-vested accumulated plan benefits, and the net assets of the plans
available for benefits is omitted, as the information is not separately
calculated for PHL Variable's participation in the Plans. The amount of
such allocated benefits is immaterial to the financial statements. However,
with respect to the Phoenix Home Life Mutual Insurance Company Employee
Pension Plan, the total assets of the plan exceeded the actuarial present
value of vested benefits at January 1, 1996, the date of the most recent
actuarial valuation.
B-26
<PAGE>
PHL VARIABLE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF PM HOLDINGS, INC.)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
3. INVESTMENTS
Information pertaining to PHL Variable's investments, net investment income
and realized and unrealized investment gains and losses follows:
FIXED MATURITIES
The amortized cost and fair value of investments in fixed maturities as of
December 31, 1996 were as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
(IN THOUSANDS)
FIXED MATURITIES:
HELD-TO-MATURITY:
<S> <C> <C> <C> <C>
Corporate securities $ 1,827 $ (337) $ 1,490
------------------ -------------------- -----------------
Total 1,827 (337) 1,490
------------------ -------------------- -----------------
AVAILABLE-FOR-SALE:
U.S. government and agency bonds 7,816 $ 167 (1) 7,982
State and political subdivision bonds 2,635 6 (1) 2,640
Mortgage-backed securities 4,679 (22) 4,657
------------------ ------------------- -------------------- -----------------
Total 15,130 173 (24) 15,279
------------------ ------------------- -------------------- -----------------
Total fixed maturities $ 16,957 $ 173 $ (361) $ 16,769
================== =================== ==================== ================
</TABLE>
B-27
<PAGE>
PHL VARIABLE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF PM HOLDINGS, INC.)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The amortized cost and fair value of investments in fixed maturities as of
December 31, 1995 were as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
(IN THOUSANDS)
FIXED MATURITIES:
AVAILABLE-FOR-SALE:
<S> <C> <C> <C> <C>
U.S. government and agency bonds $ 7,786 $ 358 $ (2) $ 8,140
State and political subdivision bonds 141 (1) 140
Mortgage-backed securities 2,714 29 2,743
----------------- ----------------- ---------------- -----------------
Total 10,641 385 (3) 11,023
----------------- ----------------- ---------------- -----------------
Total fixed maturities $ 10,641 $ 385 $ (3) $ 11,023
================= ================= ================ =================
</TABLE>
The amortized cost and fair value of fixed maturities, by contractual
maturity, as of December 31, 1996 are shown below. Actual maturities may
differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties, or
the Company may have the right to put or sell the obligations back to the
issuers.
<TABLE>
<CAPTION>
HELD-TO-MATURITY AVAILABLE-FOR-SALE
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Due in one year or less $ 4,278 $ 4,303
Due after one year through five years 6,067 6,215
Due after five years through ten years $ 1,827 $ 1,490
Due after ten years 106 104
Mortgage-backed securities 4,679 4,657
--------------- --------------- ---------------- -----------------
Total $ 1,827 $ 1,490 $ 15,130 $ 15,279
=============== =============== ================ =================
</TABLE>
The Company's investment in mortgage-backed securities at December 31, 1996
was in sequential pay bonds and at December 31, 1995 was in commercial
bonds. PHL Variable has no exposure in the more volatile residential
derivative market such as interest-only, principal-only or inverse float
instruments.
B-28
<PAGE>
PHL VARIABLE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF PM HOLDINGS, INC.)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NET INVESTMENT INCOME
The components of net investment income were as follows:
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR
PERIOD FROM PERIOD FROM
SUCCESSOR SUCCESSOR JUNE 1, JANUARY 1,
YEAR ENDED YEAR ENDED 1994 TO 1994 TO
DECEMBER 31, DECEMBER 31, DECEMBER 31, MAY 31,
1996 1995 1994 1994
<S> <C> <C> <C> <C>
Fixed maturities $ 949 $ 595 $ 256 $ 86
Short-term investments 167 233 96 51
-------------------- ------------------- -------------------- -------------------
1,116 828 352 137
Less investment expenses 19
-------------------- ------------------- -------------------- -------------------
Net investment income $ 1,097 $ 828 $ 352 $ 137
==================== =================== ==================== ===================
</TABLE>
INVESTMENT GAINS AND LOSSES
Unrealized gains and losses on investments carried at fair value at
December 31, were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
(IN THOUSANDS)
<S> <C> <C> <C>
Unrealized investment gains (losses)
Fixed maturities $ (233) $ 551 $ (169)
Deferred policy acquisition costs (40) (42)
Deferred income taxes (benefits) (96) 178 (59)
---------------- ---------------- ----------------
Net unrealized investment gains (losses) $ (177) $ 331 $ (110)
================ ================ ===============
</TABLE>
The proceeds from sales of available-for-sale fixed-maturities for the
years ended December 31, 1996, 1995 and 1994 were $3.2 million, $1.5
million and $45.5 million, respectively. The gross realized gains (losses)
associated with these sales were $(18,044), $0 and $771 in 1996, 1995 and
1994, respectively.
B-29
<PAGE>
PHL VARIABLE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF PM HOLDINGS, INC.)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
4. GOODWILL
Goodwill was as follows:
DECEMBER 31,
1996 1995
(IN THOUSANDS)
Goodwill $ 1,055 $ 1,055
Accumulated amortization (299) (196)
---------------- ------------------
Total $ 756 $ 859
================ =================
5. FAIR VALUE DISCLOSURES OF FINANCIAL INSTRUMENTS
Financial instruments that are subject to fair value disclosure
requirements (insurance contracts are excluded) are carried in the
financial statements at amounts that approximate fair value. The fair
values presented for certain financial instruments are estimates which, in
many cases, may differ significantly from the amounts which could be
realized upon immediate liquidation. In cases where market prices are not
available, estimates of fair value are based on discounted cash flow
analyses which utilize current interest rates for similar financial
instruments which have comparable terms and credit quality.
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:
CASH AND CASH EQUIVALENTS
For these short-term investments, the carrying amount approximates fair
value.
FIXED MATURITIES
Fair values are based on quoted market prices, where available, or quoted
market prices of comparable instruments. Fair values of private placement
fixed maturities are estimated using discounted cash flows that apply
interest rates currently being offered with similar terms to borrowers of
similar credit quality.
INVESTMENT CONTRACTS
Variable annuity contracts have guarantees of less than one year for which
interest credited is closely tied to rates earned on owned assets. For such
liabilities, fair value is assumed to be equal to the stated liability
balances. The contract liability balances for December 31, 1996 and 1995
were $11.6 million and $3.5 million, respectively.
B-30
<PAGE>
6. INCOME TAXES
The income taxes attributable to the results of operations are different
than the amounts determined by multiplying income before taxes by the
statutory income tax rate. The sources of the difference and the tax
effects of each for the year ended December 31, were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
(IN THOUSANDS)
<S> <C> <C> <C>
Income tax expense at statutory rate $ 165 35% $ (6) 35% $ 54 35%
Dividend received deduction & tax-
exempt interest (4) -1% (2) 11%
State income tax expense 6 1% 3 -17% 14 9%
Other, net 4 -1% (18) 114% (2) -1%
--------------- --------------- ---------------
Income taxes $ 171 36% $ (23) 143% $ 66 43%
=============== =============== ===============
</TABLE>
The following is a summary of income taxes (benefits) in the statements of
operations for the year ended December 31:
<TABLE>
<CAPTION>
1996 1995 1994
(IN THOUSANDS)
Income taxes:
Current:
<S> <C> <C> <C>
Federal $ 481 $ 44 $ 50
State 9 4 22
------------------- ----------------- ----------------
490 48 72
Deferred:
Federal (319) (71) (6)
------------------- ----------------- ----------------
Income taxes $ 171 $ (23) $ 66
=================== ================= ================
</TABLE>
B-31
<PAGE>
The deferred income tax asset (liability) represents the tax effects of
temporary differences. The components were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
(IN THOUSANDS)
<S> <C> <C>
Deferred policy acquisition costs $ (3,374) $ (386)
Surrender charges 3,538 372
Investments (59) (27)
Future policyholder benefits 252 88
Other 29 20
----------------- -----------------
386 67
Net unrealized investment losses (23) (119)
----------------- -----------------
Deferred tax asset (liability), net $ 363 $ (52)
================= =================
</TABLE>
It is management's assessment, based on the Company's earnings and
projected future taxable income, that it is more likely than not that the
deferred tax assets at December 31, 1996 and 1995, will be realized.
Gross deferred income tax assets totaled $3.8 million and $.5 million at
December 31, 1996 and 1995, respectively. Gross deferred income tax
liabilities totaled $3.5 million and $.5 million at December 31, 1996 and
1995, respectively.
The Internal Revenue Service (IRS) is currently examining the Company's
tax return for 1994. Management does not believe that there will be a
material adverse effect on the financial statements as a result of pending
tax matters.
7. REINSURANCE
Beginning in January 1996, the Company entered into a reinsurance treaty
that cedes death benefits to a reinsurer in excess of account balances on
variable contracts. Premiums paid during the year were $48,715. Under this
treaty, no claims were recoverable in 1996.
B-32
<PAGE>
PHL VARIABLE INSURANCE COMPANY
(A WHOLLY-OWNED SUBSIDIARY OF PM HOLDINGS, INC.)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
8. DEFERRED POLICY ACQUISITION COSTS
The following reflects the amount of policy acquisition costs deferred and
amortized for the years ended December 31:
<TABLE>
<CAPTION>
1996 1995
(IN THOUSANDS)
<S> <C> <C>
Balance at beginning of year $ 1,061
Acquisition expense deferred 9,114 $ 1,055
Amortized to expense during the year (578) 48
Adjustment to equity during the year (40) (42)
------------------ -----------------
Balance at end of year $ 9,557 $ 1,061
================== =================
</TABLE>
9. STATUTORY FINANCIAL INFORMATION
The insurance subsidiaries are required to file annual statements with
state regulatory authorities prepared on an accounting basis prescribed or
permitted by such authorities. As of December 31, 1996, there were no
material practices not prescribed by the Insurance Department of the State
of Connecticut. Statutory equity differs from stockholder's equity reported
in accordance with GAAP for life insurance companies primarily because
policy acquisition costs are expensed when incurred, investment reserves
are based on different assumptions, postretirement benefit costs are based
on different assumptions and reflect a different method of adoption, life
insurance reserves are based on different assumptions and income tax
expense reflects only taxes paid or currently payable.
The following reconciles the statutory surplus and asset valuation reserve
(AVR) of the Company as reported to regulatory authorities to equity as
reported in these financial statements:
<TABLE>
<CAPTION>
1996 1995
(IN THOUSANDS)
<S> <C> <C>
Statutory surplus and AVR $ 16,790 $ 15,728
Deferred policy acquisition costs, net 9,639 1,103
Future policy benefits (10,828) (1,313)
Investment valuation allowances 44 221
Deferred income tax 403 84
Other, net 756 858
------------------ -----------------
Equity, as reported $ 16,804 $ 16,681
================== =================
</TABLE>
The Connecticut Insurance Holding Act limits the maximum amount of annual
dividends or other distributions available to stockholders of Connecticut
insurance companies without prior approval of the Insurance Commissioner.
Under current law, the maximum dividend distribution which may be made by
the Company during 1997 without prior approval is subject to restrictions
relating to statutory surplus.
B-33
<PAGE>
PART C
OTHER INFORMATION
Registrant hereby represents that, in imposing certain restrictions upon
withdrawals from some annuity contracts, it is relying upon the no-action letter
given to the American Council of Life Insurance (publicly available November 28,
1988) (Ref. No. 1P-6-88) regarding compliance with Section 403(b) (ii) of the
Internal Revenue Code and that it is in compliance with the conditions for
reliance upon that letter set forth therein.
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements
The financial statements are included in Part B and condensed
financial information is included in Part A.
(b) Exhibits
(1) Resolution of the Board of Directors of PHL Variable
Insurance Company establishing the PHL Variable Accumulation
Account is incorporated by reference to registrant's
Registration Statement on Form N-4 dated December 14, 1994.
(2) Not Applicable.
(3) Distribution of Policies
(a) Form of Underwriting Agreement between PHL Variable
Insurance Company and Phoenix Equity Planning
Corporation is incorporated by reference to registrant's
Pre-Effective Amendment No. 1 to its Form N-4
Registration Statement dated July 20, 1995.
(b) Form of Agreement between Phoenix Equity Planning
Corporation with respect to the sale of Contracts is
incorporated by reference to registrant's Pre-Effective
Amendment No. 1 to its Form N-4 Registration Statement
dated July 20, 1995.
(c) Master Service and Distribution Compliance Agreement
between registrant and Phoenix Equity Planning
Corporation dated December 31, 1996 filed via Edgar
herewith.*
(4) Form of Variable Annuity Contract is incorporated by
reference to registrant's Registration Statement on Form N-4
dated December 14, 1994.
(5) Form of Application is incorporated by reference to
registrant's Pre-Effective Amendment No. 1 to its Form N-4
Registration Statement dated July 20, 1995.
(6) (a) Charter of PHL Variable Insurance Company is
incorporated by reference to registrant's Registration
Statement on Form N-4 dated December 14, 1994.
(b) By-Laws of PHL Variable Insurance Company is
incorporated by reference to registrant's Registration
Statement on Form N-4 dated December 14, 1994.
(7) Not Applicable.
(8) Not Applicable.
(9) See Exhibit 10(a).
(10)(a) Written Opinion and Consent of Blazzard, Grodd &
Hasenauer, P.C. filed via Edgar herewith.*
(10)(b) Written Consent of Price Waterhouse LLP filed via Edgar
herewith.*
(11) Not Applicable.
(12) Not Applicable.
-----------------
* Filed herewith.
C-1
<PAGE>
(13) (a) Explanation of Yield and Effective Yield Calculation
is incorporated by reference to registrant's Post-
Effective Amendment No. 1 to its Form N-4 Registration
Statement filed via Edgar on April 19, 1996.
(b) Explanation of Total Return Calculation is incorporated
by reference to registrant's Post-Effective Amendment
No. 1 to its Form N-4 Registration Statement filed via
Edgar on April 19, 1996.
(14) Not Applicable.
(15) (a) Powers of Attorney of Messrs. Booth, Fiondella,
Kelleher, McLoughlin, Paydos, Searfoss and Tan are
incorporated by reference to registrant's Post-Effective
Amendment No. 1 to its Form N-4 Registration Statement
filed via Edgar on April 19, 1996.
(b) Power of Attorney of Mr. Chipkin is incorporated by
reference to registrant's Post-Effective Amendment No.
2 to its Form N-4 Registration Statement filed via
Edgar on September 13, 1996.
- ------------------
* Filed herewith.
ITEM 25. DIRECTORS AND EXECUTIVE OFFICERS OF THE DEPOSITOR
<TABLE>
<CAPTION>
NAME PRINCIPAL BUSINESS ADDRESS POSITION WITH DEPOSITOR
---- -------------------------- -----------------------
<S> <C> <C>
RICHARD H. BOOTH* DIRECTOR AND EXECUTIVE
VICE PRESIDENT
ROBERT G. CHIPKIN* DIRECTOR
ROBERT W. FIONDELLA* DIRECTOR, CHAIRMAN AND
PRESIDENT
JOSEPH E. KELLEHER** DIRECTOR AND SENIOR
VICE PRESIDENT
PHILIP R. MCLOUGHLIN* DIRECTOR AND EXECUTIVE
VICE PRESIDENT
CHARLES J. PAYDOS** DIRECTOR AND EXECUTIVE
VICE PRESIDENT
DAVID W. SEARFOSS* DIRECTOR, EXECUTIVE VICE
PRESIDENT, CHIEF FINANCIAL
OFFICER AND TREASURER
SIMON Y. TAN* DIRECTOR AND SENIOR VICE
PRESIDENT
DONA D. YOUNG* DIRECTOR AND EXECUTIVE
VICE PRESIDENT
ROBERT G. LAUTENSACK* SENIOR VICE PRESIDENT
</TABLE>
- -------------
* THE PRINCIPAL BUSINESS ADDRESS OF EACH OF THESE INDIVIDUALS IS PHL VARIABLE
INSURANCE COMPANY, ONE AMERICAN ROW, HARTFORD, CONNECTICUT 06115.
** THE PRINCIPAL BUSINESS ADDRESS OF EACH OF THESE INDIVIDUALS IS PHL VARIABLE
INSURANCE COMPANY, 100 BRIGHT MEADOW BOULEVARD, P.O. BOX 2200, ENFIELD,
CONNECTICUT 06083-2200.
ITEM 26. NOT APPLICABLE
ITEM 27. NUMBER OF CONTRACT OWNERS
As of March 30, 1997, 6,605 Contracts have been sold.
C-2
<PAGE>
ITEM 28. INDEMNIFICATION
Section 5.9 of the Connecticut Corporation Law & Practice, provides that a
corporation may indemnify any director or officer of the corporation made, or
threatened to be made, a party to an action or proceeding other than one by or
in the right of the corporation to procure a judgment in its favor, whether
civil or criminal, including an action by or in the right of any other
corporation of any type or kind, by reason of the fact that he, his testator or
intestate, served such other corporation in any capacity at the request of the
indemnifying corporation.
Article III Section 14 of the By-Laws of the Company provides: "Each
Director, officer or employee of the Company, and his heirs, executors or
administrators, shall be indemnified or reimbursed by the Company for all
expenses necessarily incurred by him in connection with the defense or
reasonable settlement of any action, suit or proceeding in which he is made a
party by reason of his being or having been a Director, officer or employee of
the Company, or of any other company which he was serving as a Director or
officer at the request of the Company, except in relation to matters as to which
such Director, officer or employee is finally adjudged in such action, suit or
proceeding to be liable for negligence or misconduct in the performance of his
duties as such Director, officer or employee. The foregoing right of
indemnification or reimbursement shall not be exclusive of any other rights to
which he may be entitled under any statute, by-law, agreement, vote of
shareholders or otherwise."
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
ITEM 29. PRINCIPAL UNDERWRITER
1. Phoenix Equity Planning Corporation ("PEPCO")
(a) PEPCO currently distributes securities of the Phoenix Duff &
Phelps Funds, Phoenix Funds, and Phoenix Home Life Variable
Universal Life Account, Phoenix Home Life Variable
Accumulation Account and Phoenix Life and Annuity Variable
Universal Life Account in addition to those of the Registrant.
(b) Directors and Officers of PEPCO
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITIONS AND OFFICES
BUSINESS ADDRESS WITH UNDERWRITER
- ---------------- ----------------
<S> <C>
MICHAEL E. HAYLON*** DIRECTOR
PHILIP R. MCLOUGHLIN* DIRECTOR AND PRESIDENT
DAVID R. PEPIN** DIRECTOR AND EXECUTIVE VICE PRESIDENT
PAUL ATKINS*** SENIOR VICE PRESIDENT AND SALES MANAGER
MARIS LAMBERGS** SENIOR VICE PRESIDENT, INSURANCE AND INDEPENDENT DIVISION
WILLIAM R. MOYER** SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
LEONARD J. SALTIEL** MANAGING DIRECTOR, OPERATIONS AND SERVICE
JOHN F. SHARRY** MANAGING DIRECTOR, MUTUAL FUND DISTRIBUTION
G. JEFFREY BOHNE**** VICE PRESIDENT, MUTUAL FUND CUSTOMER SERVICE
EUGENE A. CHARON** VICE PRESIDENT AND CONTROLLER
NANCY G. CURTISS*** VICE PRESIDENT AND TREASURER, FUND ACCOUNTING
ELIZABETH R. SADOWINSKI** VICE PRESIDENT, ADMINISTRATION
THOMAS N. STEENBURG* VICE PRESIDENT, COUNSEL AND SECRETARY
</TABLE>
- ----------------
* THE PRINCIPAL BUSINESS ADDRESS OF EACH OF THESE INDIVIDUALS IS ONE AMERICAN
ROW, HARTFORD, CONNECTICUT 06102-5056.
** THE PRINCIPAL BUSINESS ADDRESS OF EACH OF THESE INDIVIDUALS IS 100 BRIGHT
MEADOW BOULEVARD, P.O. BOX 2200, ENFIELD, CONNECTICUT 06083-2200.
*** THE PRINCIPAL BUSINESS ADDRESS OF EACH OF THESE INDIVIDUALS IS 56 PROSPECT
STREET, HARTFORD, CONNECTICUT 06115-0480.
**** THE PRINCIPAL BUSINESS ADDRESS IS 101 MUNSON STREET, GREENFIELD,
MASSACHUSETTS 01302-0810.
C-3
<PAGE>
(c) COMPENSATION RECEIVED BY PEPCO DURING REGISTRANT'S LAST FISCAL
YEAR:
<TABLE>
<CAPTION>
NAME OF NET UNDERWRITING COMPENSATION BROKERAGE
PRINCIPAL UNDERWRITER DISCOUNTS AND COMMISSIONS ON REDEMPTION COMMISSIONS COMPENSATION
- --------------------- ------------------------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
PEPCO $7,750,042 0 0 0
</TABLE>
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
The accounts, books and other documents required to be maintained by Section
31(a) of the Investment Company Act of 1940 are maintained at the administrative
offices of PHL Variable Insurance Company located at 100 Bright Meadow
Boulevard, Enfield, Connecticut 06083-2200 and 101 Munson Street, Greenfield,
Massachusetts 01302-0810.
ITEM 31. MANAGEMENT SERVICES
Not applicable.
ITEM 32. UNDERTAKINGS
Registrant hereby undertakes:
(a) to file a post-effective amendment to this registration statement as
frequently as is necessary to ensure that the audited financial
statements contained therein are never more than 16 months old for so
long as payments under the Contracts may be accepted;
(b) to include as part of any application to purchase a Contract offered
by the prospectus, a space that an applicant can check to request a
Statement of Additional Information;
(c) to deliver any Statement of Additional Information and any financial
statements required to be made available under this form promptly
upon written or oral request.
Pursuant to Section 26(e)(2)(A) of the Investment Company Act of 1940, as
amended, PHL Variable Insurance Company represents that the fees and charges
deducted under the Contracts, in the aggregate, are reasonable in relation to
the services rendered, expenses expected to be incurred and the risks to be
assumed thereunder by PHL Variable Insurance Company.
C-3
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act
of 1940, the Registrant certifies that it meets the requirements of Securities
Act Rule 485(b) for effectiveness of this Registration Statement and has caused
this Amendment to its Registration Statement to be signed on its behalf, in the
City of Hartford and State of Connecticut on this 30th day of April, 1997.
PHL VARIABLE INSURANCE COMPANY
By: *Robert W. Fiondella
-----------------------------
Robert W. Fiondella
President
PHL VARIABLE ACCUMULATION ACCOUNT
By: *Robert W. Fiondella
-----------------------------
Robert W. Fiondella
President
of PHL Variable Insurance Company
As required by the Securities Act of 1933, this Amendment to the
Registration Statement has been signed below by the following persons in the
capacities indicated with PHL Variable Insurance Company on this 30th day of
April, 1997.
Signature Title
--------- -----
- ------------------------- Director
*Richard H. Booth
- ------------------------- Director
*Robert G. Chipkin
Director, Chairman and
President
- ------------------------- (Principal Executive Officer)
*Robert W. Fiondella
- ------------------------- Director
*Joseph E. Kelleher
- ------------------------- Director
*Philip R. McLoughlin
- ------------------------- Director
*Charles J. Paydos
- ------------------------- Director
*David W. Searfoss
- ------------------------- Director
*Simon Y. Tan
- ------------------------- Director
*Dona D. Young
By:/s/ Richard J. Wirth
-----------------------------------
*RICHARD J. WIRTH, as Attorney in Fact pursuant to Powers of Attorney, copies
of which were previously filed.
S-1(c)
Exhibit 3(c)
Master Service and Distribution
Compliance Agreement
<PAGE>
MASTER SERVICE AND DISTRIBUTION COMPLIANCE AGREEMENT
THIS AGREEMENT, made this 31st day of December, 1996, by and among
Variable Insurance Company ("PHL Variable"), a Connecticut stock company, on
behalf of itself and the PHL Variable Accumulation Account (the "Account"), and
Phoenix Equity Planning Corporation ("PEPCO"), a Connecticut corporation.
WITNESSETH:
WHEREAS, PHL Variable offers for sale a variable annuity contract funded
through a Separate Account of PHL Variable registered as a unit investment trust
under the Investment Company Act of 1940, as amended ("1940 Act"), and pursuant
to a registration statement filed with the Securities and Exchange Commission
under the Securities Act of 1933, as amended ("Securities Act"), and listed on
Schedule A of this Agreement (the "Contract"), and
WHEREAS, PEPCO is registered as a broker-dealer with the Securities and
Exchange Commission ("SEC") under the Securities Exchange Act of 1934, as
amended ("1934 Act") and is a member of the National Association of Securities
Dealers, Inc. ("NASD"), and
WHEREAS, PHL Variable desires to engage PEPCO to perform certain services
with respect to the books and records to be maintained in connection with the
sale of the Contract and certain administrative and other functions as set
forth herein.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
the parties hereto agree as follows:
I. Services of PEPCO
-----------------
A. APPOINTMENT. PHL Variable hereby appoints PEPCO, and PEPCO hereby
accepts the appointment as, Master Service and Distributor of the Contract.
B. DUTIES. PEPCO shall perform those administrative, compliance and other
services with respect to the Contract as described herein. PEPCO agrees to use
its best efforts in performing the activities outlined in paragraphs I. C and
I. F of this Agreement.
C. WRITTEN AGREEMENTS. PEPCO has and shall enter into written agreements
with broker-dealer firms whose registered representatives have been or shall be
properly licensed to sell registered securities and insurance products including
variable annuity licensed if required, and appointed as life insurance agents of
PHL Variable. PHL Variable shall pay all fees associated with the appointments
of such selected representatives as insurance agents of PHL Variable. Such
agreements with broker-dealers shall provide that such broker-dealer shall cause
applications to be solicited for the purchase of the Contract. Such agreements
shall include such terms and conditions as PEPCO may determine not inconsistent
with this Agreement, provided, however, that any broker-
<PAGE>
-2-
dealer with whom PEPCO has entered into a written agreement must comply with the
following terms which shall be included in all such agreements:
The broker-dealer must:
(a) be a registered broker-dealer under the 1934 Act and be a member of
the NASD; and
(b) agree that, in connection with the solicitation of applications for
the purchase of the Contract, the broker-dealer will in all respects
conform to the requirements of all state and federal laws and the
Rules of Fair Practice of the NASD relating to the sale of the
Contract and will indemnify and hold harmless PEPCO and PHL Variable
from any damage or expense of any nature whatsoever on account of the
negligence, misconduct or wrongful act of such broker-dealer or any
employee, representative or agent of such broker-dealer.
In obtaining and entering into written agreements with broker-dealers,
PEPCO will in all respects conform to the requirements of all state and federal
law, and the Rules of Fair Practice of the NASD.
D. RECORDKEEPING. PEPCO shall maintain and preserve, or cause to be
maintained and preserved, such accounts, books, and other documents as are
required of it under this Agreement, the 1934 Act and any other applicable laws
and regulations, including without limitation and to the extent applicable,
Rules 17a-3 and l7a-4 under the 1934 Act. The books, accounts and records of
PEPCO as to services provided hereunder, shall be maintained so as to disclose
clearly and accurately the nature and details of the transactions.
E. SUPERVISION. PEPCO shall select associated persons who are trained and
qualified persons, to solicit applications for purchase of the Contract in
conformance with applicable state and federal laws. Any such persons shall be
registered representatives of PEPCO in accordance with the rules of the NASD, be
licensed to offer the Contract in accordance with the insurance laws of any
jurisdiction in which such person solicits applications, be licensed with and
appointed by PHL Variable as an insurance agent to solicit applications for the
Contract and have entered into the appropriate Variable Contract Insurance
Commission Agreement with PHL Variable. PEPCO will train and supervise its
registered representatives to insure that the purchase of a Contract is not
recommended to an applicant in the absence of reasonable grounds to believe that
the purchase of the Contract is suitable for that applicant. PEPCO shall pay the
fees to regulatory authorities in connection with obtaining necessary securities
licenses and authorizations for its registered representatives to solicit
applications for the purchase of the Contract. PEPCO is not responsible
<PAGE>
- 3 -
for fees in connection with the appointment of registered representatives as
insurance agents of PHL Variable.
F. Sales Materials and Other Documents.
------------------------------------
(a) PEPCO's RESPONSIBILITIES. PEPCO shall be responsible for the approval
of promotional material by the SEC and the NASD, where required.
(b) PHL VARIABLE'S RESPONSIBILITIES. PHL Variable shall be responsible
for:
(i) the design, preparation and printing of all promotional material
to be used in the distribution of the Contract;
(ii) the approval of promotional material by state and other local
insurance regulatory authorities.
(iii) confirming the issuance of the Contract to the Contract Owner.
(c) RIGHT TO APPROVE. Neither party nor any of its agents or affiliates
shall print, publish or distribute any advertisement, circular or any
document relating to the Contract or relating to the other party
unless such advertisement, circular or document shall have been
approved in writing by the other party. However, nothing herein shall
prohibit any party from advertising annuities or life insurance in
general or on a generic basis subject to compliance with all
applicable laws, rules and regulations. Each party reserves the right
to require modification of any such material to comply with applicable
laws, rules and regulations and agrees to provide timely responses
regarding material submitted to it by the other party.
G. PAYMENTS TO BROKER-DEALERS. PEPCO shall serve as paying agent for
amounts due broker-dealers for sales commissions. PHL Variable shall forward to
PEPCO any such amounts due broker-dealers from PHL Variable and PEPCO shall be
responsible to pay such amounts to the persons entitled thereto as set forth in
the applicable written agreements with such broker-dealers subject to all
applicable state insurance laws and regulations and all applicable federal
and/or state securities laws and NASD rules. PEPCO shall reflect such amounts on
its books and records as required by Paragraph D hereto.
<PAGE>
-4-
H. COMPLIANCE. PEPCO shall, at all times, when performing its functions
under this Agreement, be registered as a securities broker-dealer with the SEC
and the NASD and be licensed or registered as a securities broker-dealer in any
jurisdiction where the performance of the duties contemplated by this Agreement
would require such licensing or registration. PEPCO represents and warrants that
it shall otherwise comply with provisions of federal and state law in performing
its duties hereunder.
I. PAYMENT OF EXPENSES BY PEPCO. PEPCO shall pay the expenses incurred
in connection with its provision of services hereunder and the distribution of
the Contract.
II. General Provisions
------------------
A. INSPECTION OF BOOKS AND RECORDS. PEPCO and PHL Variable agree that all
records relating to services provided hereunder shall be subject to reasonable
periodic, special or other audit or examination by the SEC, NASD, or any state
insurance commissioner or any other regulatory body having jurisdiction. PEPCO
and PHL Variable agree to cooperate fully in any securities or insurance
regulatory or judicial investigation, inspection, inquiry or proceeding arising
in connection with the services provided under this Agreement, or with respect
to PEPCO or PHL Variable or their affiliates, to the extent related to the
distribution of the Contract. PEPCO and PHL Variable will notify each other
promptly of any customer compliant or notice of regulatory or judicial
proceeding, and, in the case of a customer complaint, will cooperate in arriving
at a mutually satisfactory resolution thereof.
B. INDEMNIFICATION. PEPCO will indemnify and hold harmless PHL Variable
and the Account, from any and all expenses, losses, claims, damages or
liabilities (including attorney fees) incurred by reason of any
misrepresentation, wrongful or unauthorized act or omission, negligence of, or
failure of PEPCO, including any employee of PEPCO, to comply with the terms of
this Agreement, provided however, PEPCO shall not be required to indemnify for
any such expenses, losses, claims, damages or liabilities which have resulted
from the negligence, misconduct or wrongful act of the party seeking
indemnification. PEPCO shall also hold harmless and indemnify PHL Variable and
the Account for any and all expenses, losses, claims, damages, or liability
(including attorneys fees) arising from any misrepresentation, wrongful or
unauthorized act or omission, negligence of, or failure of a broker-dealer or
its employees, agents or registered representatives, to comply with the terms of
the written agreement entered into between PEPCO and such broker-dealer but only
to the extent that PEPCO is indemnified by the broker-dealer under the terms of
the written agreement. PHL Variable will indemnify and hold harmless PEPCO, for
any expenses, losses, claims, damages or liabilities (including attorneys fees)
incurred by reason of any material misrepresentation or omission in a
registration statement or prospectus for the Contract, or on account of any
other misrepresentation, wrongful or unauthorized act or omission, negligence
of, or failure of PHL Variable, including any employee of PHL Variable, to
comply with the terms of
<PAGE>
-5-
this Agreement, provided however, PHL Variable shall not be required to
indemnify for any expenses, losses, claims, damages or liabilities which have
resulted from the negligence, misconduct or wrongful act of the party seeking
indemnification.
C. COMPENSATION. PHL Variable shall compensate PEPCO for the services
PEPCO performs hereunder as the parties shall agree from time to time and as
listed on Schedule A of this Agreement. PEPCO agrees to return promptly to PHL
Variable all compensation received for any Contract returned within the "free
look" period as specified in the Contract.
D. TERMINATION. This Agreement shall become effective on the date of this
Agreement and shall continue to be in effect, except that:
(a) Any party hereto may terminate this Agreement on any date by
giving the other party at least thirty (30) days' prior written
notice of such termination specifying the date fixed therefor.
(b) This Agreement may not be assigned by PEPCO without the consent
of PHL Variable.
E. REGISTRATION. PHL Variable and the Account agree to use their best
efforts to effect and maintain the registration of the Contract under the
Securities Act and the Account under the 1940 Act, and to qualify the Contract
under the state securities and insurance laws as applicable, and to qualify the
Contract as annuities under the Internal Revenue Code. PHL Variable will pay or
cause to be paid expenses (including the fees and disbursements of its own
counsel) of the registration and maintenance of the Contracts under the
Securities Act and of the Account under the 1940 Act, and to qualify the
Contract under the state securities and insurance laws.
F. AUTHORITY. PEPCO shall have authority hereunder only as expressly
granted in this Agreement.
G. MISCELLANEOUS. PHL Variable agrees to advise PEPCO immediately in the
case of an issuance by the SEC of any stop order suspending the effectiveness of
the Prospectus for the Contracts, of all actions of the SEC with respect to any
amendments to the registration statement(s) which may from time to time be filed
with the SEC and of any material event which makes untrue any statement made in
the registration statement for the Contract, or which requires the making of a
change in the registration statement in order to make the statement therein not
misleading. PHL Variable agrees to advise PEPCO in the event that formal
administrative proceedings are instituted against PHL Variable by the SEC, or
any state securities or insurance department or any other regulatory body
regarding PHL Variable's duties under this Agreement, unless PHL Variable
determines in its sole judgment, exercised in good faith, that any such
administrative proceeding will not have a material adverse effect upon its
ability to perform its obligations under this Agreement.
<PAGE>
-6-
PEPCO agrees to advise PHL Variable in the event that formal administrative
proceedings are instituted against PEPCO by the SEC, NASD, or any state
securities or insurance department or any other regulatory body regarding
PEPCO's duties under this Agreement, unless PEPCO determines in its sole
judgment exercised in good faith, that any such administrative proceedings will
not have a material adverse effect upon its ability to perform its obligations
under this Agreement.
H. INDEPENDENT CONTRACTOR. PEPCO shall undertake and discharge its
obligations hereunder as an independent contractor and nothing herein shall be
construed as establishing: (I) an employer-employee relation between the parties
hereto; or (ii) a joint venture.
I. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Connecticut.
IN WITNESS WHEREOF, the parties have hereunto set their hands on the date
first above written.
PHL VARIABLE INSURANCE COMPANY
For itself and PHL VARIABLE ACCUMULATION ACCOUNT
By: /s/ Dona D. Young
-------------------------------
Title:
PHOENIX EQUITY PLANNING CORPORATION
By: /s/ Philip R. McLoughlin
-------------------------------
Title
<PAGE>
Schedule A
----------
PEPCO has been appointed by PHL Variable to perform certain administrative,
compliance and other services with respect to the following variable annuity
contract ("Contract") issued by PHL Variable Insurance Company:
THE BIG EDGE CHOICE - Individual Deferred Variable
Accumulation Annuity Contract issued by the PHL Variable
Accumulation Account of PHL Variable. PEPCO shall receive
payments for services performed under this Agreement equal to
up to 7.25% of purchase or premium payments made under The
Big Edge Choice Contract. In addition, PEPCO shall receive an
underwriting fee of 75-100 bps on deposits under The Big Edge
Choice Contract, for sales assistance attributable to
broker-dealers, other than WS Griffith and Co. Inc. and
PLANCO Financial Services Inc.
Exhibit 10(a)
Written Opinion and Consent of Blazzard, Grodd & Hasenauer, P.C.
<PAGE>
April 28, 1997
Board of Directors
Phoenix Home Life Mutual Insurance Company
One American Row
Hartford, CT 06115
RE: Opinion of Counsel
PHL VARIABLE ACCUMULATION ACCOUNT
Gentlemen:
You have requested our Opinion of Counsel in connection with the filing
with the Securities and Exchange Commission of Post-Effective Amendment No. 3
to a Registration Statement on Form N-4 (File Nos. 33-87376 and 811-8914) with
respect to a Variable Accumulation Deferred Annuity Contract (the "Contract")
to be issued by PHL Variable Insurance Company and its separate account, PHL
Variable Accumulation Account.
We have made such examination of the law and have examined such records
and documents as in our judgment are necessary or appropriate to enable us
to render the following opinion:
Upon the acceptance of purchase payments made by an Owner pursuant
to a Contract issued in accordance with the Prospectus contained in
the Registration Statement and upon compliance with applicable law,
such an Owner will have a legally-issued, fully paid, non-assessable
contractual interest under such Contract.
This opinion is limited soley to its use as an exhibit to your Post-
Effective Amendment No. 3 to Form N-4 (File Nos. 33-87376 and 811-8914).
We consent to the references to our Firm under the captions "Legal Matters"
in the Prospectus and "Experts" in the Statement of Additional Information
which forms a part of the Registration Statement.
Sincerely
BLAZZARD, GRODD & HASENAUER, P.C.
By: /s/Lynn Korman Stone
-----------------------------------
Lynn Korman Stone
Exhibit 10(b)
Written Consent of Price Waterhouse LLP
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 3 to the registration
statement on Form N-4 (the "Registration Statement") of our reports dated
February 12, 1997, relating to the financial statements of PHL Variable
Accumulation Account and the financial statements of PHL Variable Insurance
Company which appear in such Statement of Additional Information, and to the
incorporation by reference of our reports into the Prospectus which constitutes
part of this Registration Statement. We also consent to the reference to us
under the heading "Experts" in such Statement of Additional Information.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Hartford, Connecticut
April 25, 1997
